Vistin Pharma ASA

OSE:VISTN

Earnings Call Analysis

Vistin Pharma's Record High 2023 Earnings

Vistin Pharma saw a record revenue of NOK 438 million for 2023, marking a 44% spike over the previous year. The fourth quarter alone brought a 12% revenue increase year-over-year, reaching NOK 111 million. Alongside revenue growth, EBITDA soared by 150% in Q4 and overall annual EBITDA hit NOK 86 million, credited to higher volumes and economies of scale. Profits in Q4 '23 ended at NOK 18 million, despite a flat currency-neutral revenue compared to the same quarter last year. The company also announced an additional dividend of NOK 0.75 per share, with plans for an ordinary dividend of NOK 1. Vistin Pharma, bolstering an 81% equity ratio and a robust balance sheet with no net debt, affirmed a bright outlook with expected continuous growth in the global demand for metformin, projecting a CAGR of 5-6%.

Vistin Pharma Delivers Record High Revenue in 2023 with Expanding Production Capacity

In 2023, Vistin Pharma reported a significant financial performance with a 44% increase in annual revenue, reaching NOK 438 million, surpassing the previous year's NOK 305 million. The fourth quarter alone showed a 12% increase to NOK 111 million compared to NOK 99 million in the same period of 2022. This surge is attributed to the company's expansion strategy that included running two production lines, where the new line is still in the ramp-up phase. Increased sales volume was the main driver of this growth, signaling a strong demand for the company's products.

EBITDA Soars to All-Time High, Reflecting Economies of Scale

The EBITDA for the fourth quarter was NOK 25 million, which is a remarkable 150% increase from the fourth quarter of 2022's NOK 10 million. The comprehensive annual EBITDA also reached an all-time high of NOK 86 million, a substantial leap from the previous year's NOK 6 million. This increase was partially boosted by an unrealized gain of around NOK 7 million from FX cash flow hedging contracts. Positive economies of scale from the Metformin Expansion Project and competitive energy costs contributed to these impressive numbers.

Strong Balance Sheet and Robust Dividend Payout

Vistin Pharma maintains a solid financial position with an equity ratio of 81% and net cash of NOK 26 million as of December 31, 2023. Furthermore, shareholders received an additional dividend of NOK 0.75 per share in January 2024, with a proposed ordinary dividend of NOK 1 per share to be distributed in two installments across the year.

Vistin Pharma: A Key Player in the Essential Diabetes Treatment Market

The company is dedicated to producing metformin, a frontline treatment for type 2 diabetes, marking its significance in a rapidly growing global health crisis. With an approximately 10% market share in the metformin industry, Vistin Pharma is strategically positioned to meet the increasing demand due to the rise in diabetes cases. The company's performance benefits from its lean operations, strong market presence, and the focus on a drug that remains essential for low and middle-income countries due to its cost-effectiveness.

Earnings Call Transcript 2023-Q4

[Operator]

Good day, and thank you for standing by. Welcome to the Vistin Pharma Quarterly Report Q4 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Magnus Tolleshaug. Please go ahead.

[Magnus Tolleshaug, executive]

Thank you, and welcome, everyone, to this Q4 and preliminary 2023 Results Presentation of Vistin Pharma. This presentation will be held by myself, Magnus Tolleshaug, the CEO of the company; and also Alexander Karlsen, our CFO of the company.

I will now go through the financial highlights. We are happy to announce that Vistin Pharma has had another strong quarter. The revenue of the fourth quarter ended at NOK 111 million versus NOK 99 million in Q4 2022, which represents a 12% increase. Increased volume from the new production line compared to the same quarter last year has resulted in more volumes available for sale.

The full 2023 revenue ended at a record high NOK 438 million compared to NOK 305 million last year, so a 44% increase. The strong revenue increase in 2023 reflects a year with 2 production lines running, although the new line is still in the ramp-up phase.

The EBITDA of the fourth quarter ended at NOK 25 million versus NOK 10 million in the fourth quarter of 2022. The EBITDA was positively affected by increased sales volume, a stronger euro versus NOK and partly offset by a stronger U.S. dollar versus Norwegian kroners. There was a bonus accrual of NOK 2.9 million booked in the quarter compared to NOK 0.5 million in the fourth quarter 2022.

We are happy to see positive economies of scale effects as the Metformin Expansion Project volume continue to ramp up. The full 2023 EBITDA ended at all-time high, NOK 86 million compared to NOK 6 million last year. The net profit was positively affected with approximately NOK 7 million in the quarter by fair value of future FX cash flow hedging contracts. So this is unrealized gain, no cash effect in the quarter.

We have a strong balance sheet with an equity ratio of 81% and the net cash of NOK 26 million as of December 31, 2023. Additional dividend of NOK 0.75 per share was approved and paid in January 2024 to our shareholders. And the Board of Directors will propose for the Annual General Meeting an ordinary dividend of total NOK 1 per share to be paid partly with NOK 0.5 in June and another NOK 0.5 in November.

We are a pure-play metformin company as we -- with the right outlook, as we like to say. Diabetes is really one of the largest health emergencies in the 21st century, and we deliver metformin as a medication. And metformin is the gold standard treatment of type 2 diabetes. And the reason for this is it's a well-known drug for decades. It has a good efficacy and a favorable safety profile, and it is a low treatment cost for the patient and especially relevant for low and middle-income countries where also the growth of type 2 diabetes is very high.

So as well as to say, we have a bright outlook for Vistin Pharma. We are a leading global producer of premium quality metformin. If we look at the global demand for metformin, it's expected to continue to grow by a compound annual growth rate of between 5% to 6% on an annual basis. And Vistin Pharma, we have a global market share of approximately 10%.

Diabetes Type 2 is really a global emergency. The total number of diabetes patients is expected to rise to 783 million people by 2045, so an increase of 46%. This slide shows figures from the International Diabetes Federation. We know that today, about 550 million people have diabetes and around 90% of those cases are type 2 diabetes. More than 6 million people die of diabetes every year. And it's also estimated that around 250 million of adults are still undiagnosed with Type 2, who may need a treatment. And from a global health expenditure perspective, about 11.5% of the global health expenditure is spent on diabetes. So it's really a global emergency.

[indiscernible] so our revenue in Vistin many years back. As you can see, Vistin Pharma has had a long and successful track record. I think it is great to see our double capacity investments in 2022 is materializing in sales in 2023 and that we can start harvesting from the expansion benefits. So we are happy today to show a record high revenue for 2023.

And on that positive note, I would like to hand over to our CFO, Mr. Alexander Karlsen, to go through the financials.

[Alexander Karlsen, executive]

Thank you, Magnus. We will start to have a look at the sales volume. Looking at the graph to the left, we can see an increase of sales volume from Q4 '22 to Q4 '23 of around 11%. The Q4 sales volume was, however, lower than the Q3, driven by our planned the annual maintenance stock, which gives less of our available for sale in Q4.

Having a look again on the graph to the right, the annual sales volume ended at around 5,000 tonnes in 2023, compared to around 3,500 tonnes in 2022, which equals 1,500 tonne growth/44% increase. Having a look at the revenue, revenue increased by around 11% compared to the same quarter last year. However, currency neutral revenue is flat compared to that quarter. That's driven by that the metformin prices are correlating with the global raw material prices and the material prices has gone down during 2023.

However, looking at the gross margin, we see a very positive effect from the previous quarters. That's also adjusted for FX and the positive effect in the gross margin driven by economies of scale, decreased raw material prices and favorable FX. As previously, we continue to have an ambition of a gross margin of about 60%.

Having a look at the EBITDA, which came at NOK 25 million compared to around NOK 10 million in Q4 '22, which is a 150% increase. The EBITDA is positively affected by increased sales volume, competitive energy costs from the 10-year fixed price agreement with Statkraft and also a net positive effect of FX. And as Magnus mentioned, our bonds accrual of NOK 2.9 million was booked in the fourth quarter compared to NOK 0.5 million in Q4 2022. And from an economic standpoint, we are very happy to see that we achieved the economical scale within new production volume.

Looking some more details in the [indiscernible] commitment for the Q4 '23, we went through the revenue and EBITDA. Earnings before taxes came in at NOK 23.1 million. The depreciation was higher in Q4 this year -- sorry, in Q4 '23 compared to Q4 '22, and that's mainly driven that we did not start to depreciate all the investments before in '23. Net fine income in Q4 '23 was driven by the NOK 7 million in unrealized gain on future FX hedging contracts.

Profit in the Q4 '23 ended at NOK 18 million. Please note that the tax cost in the P&L is not payable due to the deferred tax assets we have in the balance sheet. Having also a brief look at the 2023 preliminary numbers. Total revenue came in around NOK 438 million, a 44% increase from 2022, driven by more volumes available for sale. EBITDA for 2023 came in at close to NOK 86 million. And the huge increase there is driven by volumes, economical scale, FX and the Statkraft agreement for electricity.

Earnings before taxes ended at around NOK 58.5 million. This is a big increase in depreciation from '22 to '23, and that's driven by the depreciation of the MEP investments. There's a net finance expense in 2023 of around NOK 10 million, driven by realized loss on FX hedging contracts in the year. Net profit came in at around NOK 45.6 million. Again, the tax cost is not payable due to the deferred tax asset in the balance sheet.

Moving on from the P&L to the balance sheet, having a look at the asset side first. The fixed assets of close to NOK 220 million is mainly equipment and machines at the plant in Kragerø. The deferred tax asset has decreased from last year, driven by generating positive results. So total noncurrent assets at year-end '23 around NOK 234.7 million.

Inventory, similar value as last year. However, this in end of '23, we have more finished goods and less raw materials at hand compared to end '22, where we had more raw materials and less finished goods. As probably most of you know, there are limitations in transportation through the Suez Canal, which has significantly increased our lead times for our raw materials that's sent from Asia. However, we don't anticipate any impact now on the production as we have sufficient local safety stock of the critical raw materials, either in hand physically or at sea on the right side of the Suez Canal. But we are monitoring the situation closely.

Looking at the cash, we had around NOK 26.2 million compared to around NOK [ 1.4 ] million at end of '22. That gives total assets of close to NOK 399 million as of end 2023.

Having a look at the equity and liabilities. Total equity came in at around NOK 322.8 million, mainly driven by an increase in retained earnings, again, as we drive positive results. That has also translated to a strong equity ratio of 81%. On the noncurrent liabilities, down around NOK 4 million, NOK 4.5 million, driven by a decrease in the pension liability as of year-end.

Looking at current liabilities, no net interest paying debt as of end December 2023. And the total liabilities is around NOK 75.8 million as of year-end compared to close to NOK [ 134 ] million as of year-end 2022, change mainly driven by a down payment of the short-term debt. It's also worth mentioning that we have a credit facility available, if needed. And that gives total equity and liabilities of close to NOK 399 million.

I think I'm done with the details of the financials now, Magnus. I now hand over back to you.

[Magnus Tolleshaug, executive]

Yes. Thank you, Alexander. I'd like to spend a minute to go through our strategic position and recap some highlights. We have the double capacity, double care metformin strategy. Vistin Pharma is a strategically positioned producer of 2 different metformin products. It's Metformin ACL, which is the API, the powder; and the DC, the direct compressible granules. So we preprocess and sell to the pharmaceutical customers granules they can put directly on the tableting machine.

We continuously enhance our capability to supply tailor-made products to our customers. We also always work on our cost of goods by investing in cost-efficient supply of raw materials and waste handling and the lean principles. And we are strategically well positioned as many European clients prefer high-quality supplies, near shore production and a leading ESG profile.

One attractive growth potential with the new production line that we installed in 2022. As you have seen today, the sales volume has increased by 44% from 2022 to 2023. And the volume increase is expected to continue as we ramp up our capacity. We are a premium producer in a competitive market. We have typical sales to reputable international pharmaceutical companies. We have our state-of-the-art, fully automated manufacturing plant in Kragerø in Norway. And we are certified by all significant international regulatory bodies to be able to sell our drug globally.

The metformin market is expected to continue to grow by a CAGR compound annual growth rate of 5% to 6% annually. And as mentioned, diabetes is one of the largest health crisis of the 21st century. And metformin is expected to maintain its position as the gold standard treatment of Type 2 diabetes in the foreseeable future.

If you look at the global demand, the additional demands of metformin HCL by industry experts forecasted to grow by something like 23,000 metric tonnes to a total of 87,000 metric tonnes by 2028. So it's a lag we're talking about.

And with that, I think we are finished with the presentation and are opening up for questions.

[Operator]

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

[Magnus Tolleshaug, executive]

Yes. There is 1 question here. Whether we see any future effects in sales in regards to all those new weight reducing products that has had such an increase in sales and volumes in the market.

Yes. Well, those new weight reducing products are typically high-cost products, reducing weight, but also reducing type 2. But I mean, metformin is, as mentioned, an old, very well-known drug with well-known side effects with a very, very low treatment cost per patient per day compared to those weight-loss drugs. So we don't see any effects on sales because of those new drugs in the market. Those are typically also a very high cost for the patients. And if you look at the, as mentioned, on the low and middle income countries in the world, where out-of-pocket expenditure is needed for your treatment, that's typical metformin, which is used in that matter, so.

[Alexander Karlsen, executive]

Then there's a question about the reduction in sales volume from Q3 to Q4. I think I mentioned part of that, that that's due to the maintenance stock plan, which we have biannually in October, which reduced volumes available for sale. But it's also that our general lower activity in end Q4 as the customers prepare for Christmas and stops during year-end. So last 3 weeks of the year, there are generally very limited shipments out from us.

Then there's a question about the dividend, if that will also be a capital reduction as previous. And I would say that that's the plan. But all the details will be revealed when we send the call of our AGM in April.

And then there's a question if the current OpEx base is capable of handling 7,000 metric tonne volume. I think there are different -- there's not 1 answer to that, is that when it comes to the salary cost and the FTEs, I don't expect any significant increase to that going forward. I think our current staffing is sufficient to handle more production and more sales. However, for example, electricity waste, et cetera, is very close linked to the volume. So if you have more volume, you also have more waste and more electricity use.

We also today use or in '23 use drinking water to cool down our reactors, which is a significantly cost for us. However, we are finishing the recycling project now. We've used a -- we reuse the drinking water instead of using a new one. So that will save a lot of cost. I would also say that we have different initiatives on reducing the OpEx going forward, and that's especially important as we start next year maybe to peak on the production model, and then we will focus on productivity. But we still have also effort in increasing the volumes also in 2024.

Another question about gross margin. I would say that -- there's a question about the gross margin and current raw material costs. I would say that the raw material costs started to materialize -- sorry, some stabilized in Q4 '23 after a decrease throughout the previous -- in '23. I would say that the raw material that they will consume in 2024 probably will have a similar cost as the raw material we consumed in Q4 '23 may be slightly less this year.

And then there is a question on recent development, new projects, machinery, et cetera, I think -- and also cost savings. I think I mentioned some of the cost we're probably working on. I think 2024 will still be a year we will have a lot of focus on increasing both the production and sales volume. I'm not sure if you want to add anything there, Magnus?

[Magnus Tolleshaug, executive]

Of course, as we ramp up with new technology and improve and optimize our processes, there are R&D activities ongoing to optimize that part, which, of course, is going to reduce the cost as we go forward. That's kind of part of the Metformin Expansion Project.

[Alexander Karlsen, executive]

I think that was all, and we have answered the questions. I think we can close the call.

[Operator]

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