Good afternoon and welcome to Fagron's 2025 Capital Markets Day. I'm Ignacio Artola, Head of Investor Relations, and on behalf of the whole Fagron team, a warm welcome to those of you who are here today. I see a lot of familiar faces, but also to those who are joining us livestream online. We have a lot to share today. Let me kick off before we get started. Please note the disclaimer behind me, and on the screen you have it at the presentation that we have uploaded into our web. The agenda for today, we will cover the content first by an introduction and a brief overview, followed by our enablers. We will deep dive into them. That's going to take about one hour. Then we will have a break, a 30-minute break.
After we come back, we will cover our reasons, followed by a wrap-up and a Q&A session. It's going to be a consolidated Q&A. You will have the opportunity to address any question about the whole content or whatever you feel like. Please, for those who are joining online, you can also participate. We welcome you to address questions by the platform question assistance anytime. Those questions will also be covered. Let me introduce the team, today's speakers. Most of our executive leadership team, including our CEO, Rafa, our CFO, Karin, our COO, Vera, the area leaders of EMEA, Costas, and North America, Andy, as well as our Global HR Director, Celine, and our Vice President for Regulatory Affairs, Jay. Before I leave the floor to Rafa and Karin, we'd like to show you a short video that nicely summarizes our value proposition as of today. Thank you.
Thank you, Ignacio. Thank you all for joining both here physically and also from the webcast. Special thanks to the Chairman of the Board, Mr. Koen Hoffmann. Thank you, Koen. In the last years, under your leadership, you have created an amazing board, always constructive and with a lot of interaction. Thank you for that. What is a pharmaceutical compound, pharmaceutical compounding or personalizing medicine? A patient goes to a doctor, and the doctor prescribes it, thinking of, okay, I want to adjust the dosage strength instead of the 25 milligrams commercial. I prefer to prescribe 200 milligrams. I'm a doctor, and I want to adjust the dosage form. Maybe instead of taking a big pill, I want to prescribe syrup. I may also think on, let's, instead of taking five different capsules with five different APIs, I prescribe one.
Of course, innovation therapies, each successful commercial product has been at a stage a good pharmaceutical compound. You see pharmaceutical compounding throughout all therapeutical applications will have pediatrics. Many compounders across the globe compound solutions for neonates in the UCI to be administered in the gastroenteral tube. That is a beautiful part of our profession as well. This market is 1.5% of the total pharmaceutical market and permeates throughout the whole healthcare value chain. Raw materials, branded items, compounding services items are being sold. Of course, we as Fagron, we procure our materials to process them. The main product categories we buy are APIs, pharmaceutical excipients, and of course, packaging and equipment. What is Fagron? Fagron is the only global player, the global consolidator in a highly fragmented, niche, rapidly growing market, which is pharmaceutical compounding.
More than 4,200 people with good, very good, excellent employee engagement scores and with a clear moat. We have a scale. It's not the same buying 15,000 kilos of our material than 150 kilos. We are agile. We have a strong culture of innovation, entrepreneurship, and quality. When we look at what we sell within one product segment, which is pharmaceutical compounding, we sell three categories. The first one, essentials, the raw materials. We acquire big quantities across the globe. We bring them in our facilities. We have in-house quality control testing, and this is very important. I repeat myself, in-house quality control testing. Jay will talk over later. We repack them in our CGMP repackaging facilities, and then we sell them across the globe, more than 500,000 customers. We have the brands product category.
Those are the products that we develop ourselves with our own IP, and they are intended to support pharmacies and wholesale pharmacies, making a safe medication, and of course, prescribers in order to prescribe an effective compounded solution. We also have the compounding services where we compound different pharmaceutical forms, sterile, non-sterile. Now we look back. The last eight years that we have been together, we could divide it in three blocks. The first two years, we were planting the seed for operational excellence, for innovation, for organic growth, looking at the market, developing the pipeline. Of course, COVID came. We showed how resilient our business model is, how we can adapt to these times. The last three years were the plant became a tree, and we could see strong operational performance. Vera will explain us about all our operational footprint, again, in-house quality control testing.
Of course, we have seen acceleration of our organic growth. We have welcomed new companies into our family in organic growth, and we have shown again how strong our operational footprint and our innovation power is. If we did dive in these last three years, in 2022, we had our Capital Markets Day. We acquired Letco in the US. We acquired the Fresenius Kabi Boston facility in the US, and we will tell us later more about this one. We did get the warning letter in Minneapolis, which accelerated the transfer of our production to the Decatur, Alabama Letco. In 2023, we announced our Tampa facility, which is now, as we speak, online. We also invested together with Hans Falls, Managing Partner at Tio Pharma, some resources in registrations for the Dutch and Belgium market as well.
We announced at the end of the year, changes in reimbursement policy for the pharmaceutical, total pharmaceutical market in Poland, and of course, compounding is a part of it. We entered 2024, and in 2024, we had some nice acquisitions, and we also announced two more brownfields, which we like a lot. You, Karin, will explain later why that is. We also, at the end of the year, announced, explained that we had a warning letter in Wichita, and last week we did get amazing news, which Jay, you will share later. As every business, we navigate through complexity. I remember my first day at Fagron, that was October 15, 2002. Again, Hans, I name your name again, you told me in your office, we need to have the highest quality standards because this will make us the winner in the long term.
We couldn't agree more than that with you. We received during this period, as again said, warning letter. Minneapolis accelerated the transfer to the Cater warning letter in Wichita. You will explain us more later on. We also saw, as we said, some regulatory changes, some reimbursement changes. We adapted quite well. We invested in the market. We invested in innovation. More scripts were generated last year in Poland. Quantities were up, prices were down. We could also offset, you will explain, Costa later on, our diversified footprint in Europe. Of course, as we are a public company, we show our results. Some people like them, and they say, why don't we enter also in this market? We have seen in our second, Brazil, third, the Netherlands, main markets, how private equity backed some companies to enter in our markets.
We must say that we did a reasonably good job. We have shown how our competition playbook plays. First, defend market position, really strong operational excellence, efficiency. Second, innovation, let's work on a pipeline. You have seen it in Brazil last year. Third, again, maintaining the highest quality standards in the industry, which will set us apart. To sum up, give the word to Karin to look at the financials of the last three years. Last three years, what we've done, we have worked extremely hard on the operational footprint, infrastructure, organization, processes. We have accelerated our growth. What are we going to see the next three years? We're going to accelerate our top-line momentum. We're going also to improve profitability. Of course, we're going to start benefiting of our one-off CapEx. Thanks again, Koen, for having also with the board approved also.
Thank you, Philipp, active ownership in the board, very active with the capital allocation exercises and with these one-off projects because we're going to start entertaining the next three years, the finalization of the construction of these one-off projects, for example, Tampa in the US, which we started entertaining. Now, Karin.
Thank you very much, Rafa. Good afternoon, everybody. A warm welcome also from my side. Before we look into the future, let's first take a moment and look at how we progressed towards our initial compounding for growth plan 2022 until 2024. Top line, we achieved a little over 9% organic growth against constant exchange rates. We targeted 8%, so slightly better than the plan. If you look at our revenues or our profitability, we are at $174 million at the end of 2024, which is 20% revenue margin and an increase of 13.7% over the period. Different dynamics play into that progress during the years. Of course, we have elements that dilute our margin.
One of them was a strategic acquisition we did in the US, a Boston facility, which gave us access to high-quality customers, diversified our footprint within the US geographically, but also gave us capabilities from sterile to sterile compounding. However, it diluted our margins for the group as a whole. We see local changes. We see changes in Poland's reimbursement system. We have the Brazilian competitions, which we will talk about today. Of course, there are other elements that have a positive impact. We see operational excellence initiatives, amongst other things. Overall, we progressed towards $174 million EBITDA by 2024. We see a strong cash conversion, operating cash flow targeted for over 70%. We hit 80%. Also, free cash flow developments solid. We target for a conversion of over 50%. We are almost at 64% over the period.
All in all, with a limited CapEx, we gave a range between 3%-3.5% maintenance CapEx, and we are within that range at 3.1% of revenue. If we look at how we progressed in the regions compared to the plan that we laid out, we see that EMEA, low single-digit percentage of top-line growth. We were in that range. Despite the changes in Poland's reimbursement system, we are well within that guided range. Latin America, as said, competitive market, and we struggled the first period with heightened competitions, which we took adequate measures. However, you have seen impact there. We see a strong bounce back in 2024 H2, and again, Q1 of this year was very strong for Latin America. North America, fantastic results, almost 20% top-line developments driven by that huge demand in compounding products for that US market. This is converted into cash.
We have good visibility on top-line developments and strong cash conversion. We are overperforming there, so we're over 70% on operating cash flow conversion and over 50% on free cash flow conversion. Of course, as you can see, North America is really performing well, but we also see momentum building in the other regions, and we'll touch upon that today. I think we showed very nice progress. However, we're well positioned today to accelerate that even further.
Thanks a lot, Karin. Before you take over for the targets for the next five to six years, let's understand where we are at playing, right? The market overview, as we said, 1.5% of the total pharmaceutical market, $13.2 billion. We are only leading 11 markets, so this means that we have a lot of room for growth. In the existing markets and regions where we are present, when we deep dive on those, except for the Czech Republic, we entertain 85% of market share. We see a lot of opportunities in the rest of the markets, and we're happy also to see that in the three main markets, the US, Brazil, and the Netherlands, we still have room for strong organic growth. What's going to happen in the future?
This comes from independent report, independent data, says that the market, the personalized medicine market, will grow in the next five years up to $18 billion. We see clear tailwinds. Aging population, personalization, we spoke at the beginning, prevention and lifestyle, increased regulation, very important, highest quality standards, and of course, accessibility, drug shortages. The board asks us in each board interaction to bring and to share all these key trends and to go in deep in each one of the regions. When we start with aging population, we all become old, right? We also support this process in life. We even make medication here in the Netherlands for end-life therapies. We see this permeating more in Europe than the other regions. It is there. When we go to personalization, we see personalization permeating throughout all the regions.
As such, we have explained drug combinations, strengths, dosages, innovation therapies. When we go into prevention and lifestyle, we've seen markets with out-of-pocket as well that people want to live longer and better. Compounding is really an added value to prepare these kinds of treatments. When we go into increased regulation, we have seen across the board that regulators are increasing the requirements. It's also remarkable in the FDA. Again, Jay, you will explain us later how this is playing out, right? We need to set the highest quality standards. Of course, accessibility, we all know about drug shortages. Product files of pharmaceutical companies need to be updated for small batches. They might say, okay, we don't want to invest. It doesn't make economical sense. Compounding is an amazing tool as well. The market is going to grow, $18 billion.
The US, of course, $9 billion, the greatest opportunity. However, there is market everywhere. Before going to the financials, we define together with the teams a strategy and a general pattern set. A strategy needs to be easy to explain and to execute. People everywhere, remember, 4,000, more than 4,200 people engage, align. Celine will tell us more about that one. We have four clear enablers of our strategy: quality focus, global operational excellence, what we worked a lot on the last three years. Vera will tell more about it. Specialized R&D that supports our brands with higher margins, of course. Discipline, really discipline, M&A. This supports four pillars. The first one, we want to lead the essential markets, the raw material markets, big quantities, in-house quality control, repack across the board. Second, we want to increase materially the brands within the BNE segment.
Third, we want to lead the sterile outsourcing operations globally. We want to support our customers because they need to invest in their facilities, in their processes, and Fagron can support. Of course, we want to optimize and innovate our legacy business across the board. Together, we create the future of personalizing medicine. That is the roof. That is what keeps us every day aligned towards the next targets that we are going to see now.
Thank you very much. Our compounding for growth plan 2025-2030 is geared towards sustainable accelerated top-line growth, strong performance on profitability, and robust cash conversion. We target for a high single- to low double-digit % of top-line growth organically against constant exchange rate. That is driven by adding market gains in certain regions, customer wins, and also a deeper penetration of existing markets. We are tracking towards 21% EBITDA by 2027. That EBITDA is driven by operational excellence, operating leverage as we scale our facilities and regions, and also branded products, which in general have a higher margin than our essential profile. We are tracking towards 70% cash conversion for operating cash flow and 50% conversion for free cash flow. This is all with 3.5% of CapEx, maintenance CapEx, and then the one-offs that we will talk about today as we fuel our future growth.
The revenue mix in the region. Every region is different. It has to do with the maturity of the region, with compounding trends in that region, with different elements that play everywhere. EMEA, as we said, a very diverse region, right? We see opportunities in the brands and essentials, but also in compounding services. We target a mid-single-digit % of top-line growth. A step up compared to the targets we had previously. Latin America, a very competitive region. We target for high single-digit organic growth against constant exchange rate, driven by innovation, quality, but also sourcing scalability. Finally, North America, again, it will remain our powerhouse. Low to mid-teen top-line growth, driven by scaling up of our facilities, more outsourcings that we see, and of course, innovations.
We see compounding services growing faster than our brands and essentials, and our brands growing faster than essentials, really showing that focus on innovation and value-add. Overall, a high single-digit to low double-digit % of top-line growth. On top of that, we see momentum for M&A. It is not embedded in the guidance. It is on top of our guidance. Later today, we will share a bit more light on our M&A strategy going forward. If we look at our step up in profitability margin, we were at 20%, a good % in a very dynamic environment, and we expect a step up towards 21% by 2027. That is driven by several enablers. The first one, operating leverage, where we see scaling as a main benefit in, for instance, the US region. We see operational excellence as it is on procurement and sourcing, on manufacturing, on logistics.
We have our specialized R&D, so our brand sales, which we also touched upon today, and that will also bring additional top-line margin. Of course, there are elements that also play, like the product mix in compounding services in general, so sterile to sterile margin versus API to sterile margin. We have the uncertainty macroeconomic, as you all know. Overall, we are confident that we can make the step up from 20% to 21%. After that, we also expect a gradual step up in profitability towards 2030. Our capital allocation policy is there to maximize shareholder value and really focus around growth. Our first pillar is organic growth. We have CapEx projects running that are focused on high growth and margin accredited elements.
A good example is the extension in Wichita that we announced for $39 million US dollars, which brings us $200 million of additional capacity, which we expect to utilize pretty quickly, so nice returns on investments. Low CapEx, 3.5%. The buckets can differ a bit based on the priority, but always with our long-term plan in the back of our minds. The second pillar, M&A, where we have a disciplined approach to valuation, but also to integration. We do small to mid-size deals, and it has to have a strategic rationale that's clear. It is geographic expansion, market consolidation, or adding additional capabilities. The third pillar is dividend. Dividend, we determined together with the board based on the results, based on the cash flow we have, but also on the prospects in the market.
This is all underpinned by a strong balance sheet and a clear leverage strategy. We have an internal threshold of 2.8 times net debt EBITDA. We are currently at 1.4 times, and the banks allow us for 3.5 times. Overall, our capital allocation policy is geared towards financing our growth plans going forward and the opportunities we see in the market. With that, I want to hand to Vera and Jay.
Good afternoon, everyone. I'm Vera Bakker. I'm the CEO of the company. I'm very happy to be here today to talk to you. I'm joined on the stage by Jay, our Senior Vice President of Regulatory Affairs. Together, we'll talk you through the first two enablers. We'll talk you through operations and quality. In a few moments, I'll talk about operations. Before that, I'll give the floor to Jay to talk you through our global quality program.
Good afternoon. My name is Jay McGuire. I oversee legal and regulatory for our North American companies and also consult with our global companies on regulatory affairs. I've been with the company. My seven-year anniversary is just in a couple of days. I’ve really enjoyed both the people and what we do for patients. I'm here to talk today about quality. Quality is at the heart of everything we do. That makes sense. We source medicines. We make medicines. We repackage medicines. We distribute medicines that ultimately go into your bodies, into your loved ones' bodies, into your friends' bodies. Quality has to be the top, most important pillar within our company. As Rafa mentioned earlier in his opening comments, with quality comes success, comes the last company, the last man standing in a very competitive landscape.
A competitive landscape in many ways in the US, where raising quality standards is resulting in some consolidation, and Brazil, where a wildly growing market brings new players in the market. There is a constant and a constant importance, and that is quality. That is what we're focusing on at Fagron. I would like to speak a moment about the quality function, the quality team, and how we guarantee that the medicines that we put into the bodies of you and your loved ones are safe. The quality function is deeply embedded within this company. That is important. If I gave you the slide, it would even be more helpful. That is important. We have over 75 regulatory bodies that oversee our companies worldwide. That is at the federal level, at the state or district level, at the local level, at the customer level.
There are customer regulators that actually touch many of our facilities. With that, we bring a robust global quality team of 615 members. You'll see later in the slides that we have around 4,200 employees worldwide. That's almost 15% of our employees are focused on quality. That speaks to the importance of quality within our ecosystem. In looking at quality, you need an established structure. Let's work through our structure globally that feeds down to our operating entities. First, the organizational structure itself. We don't leave our operating entities to operate on their own. There is a global quality function followed by an area quality function that then supports each operating entity's quality function, so ultimately the 615 people we just mentioned.
With that come global guidelines, consistent guidelines that we may test facilities on in order to determine that they are meeting the standards that we set, the high standards that we set within this industry. Also, the quality specifications, the product specifications themselves, which we'll talk about a little bit more in a moment. Next, as Rafa mentioned earlier, we have brought in-house our quality testing across the world. This is incredibly important. Before, and certainly with some of our smaller competitors, they rely and we relied on third-party testing operations. It did a good job, but could be inefficient, certainly more expensive. We lost some of the control that we now have with our expertise in in-housing that function. I think it's incredibly important, and we'll pay dividends well into the future. Finally, audits. Audits come from all different places.
Internally, we audit ourselves frequently, sometimes without notice, to test our functions. We retain third parties to audit, to look at our functions at each operating entity. We are also audited by our regulators. We're audited by our customers. We welcome these audits. These audits test. They push the teams. They ultimately raise the bar, which is what we're looking for. Let's go a little bit deeper into the lifecycle of a product and how quality touches on those products. What you're looking at on the right side of your screen is a monograph. When you look at a drug, where do you need to look first at a medicine? Where do you need to look first? The molecule itself. How do we determine that the molecule is pure? How do we determine that the molecule is chemical structure, its properties, its dissolution characteristics?
All of those things are set forth in a monograph. This monograph is for ascorbic acid, vitamin C. Rafa does not want scurvy, and thus this is a very important product to keep Rafa from getting scurvy when he takes a boat over to the US. We welcome him all the time. With the monograph, we get to determine not only the chemical structure and the purity of a molecule, but also how to test it. How do you look at a molecule under the different testing mechanisms and determine that it is what it says it is? That is a drug monograph. We take that monograph, and in our in-house quality control testing, we make sure that the molecule itself is pure and is safe to be put into a patient. What is next? What do you do with the molecule? You got to package it.
One way that you can take a pure molecule and make it impure is to package it inappropriately. Thus, we have, through Vera's hard work and the hard work of her teams, top-notch facilities, world-class facilities across the globe to package these molecules into packages safely and under current good manufacturing practice standards. Those molecules are then distributed. We get to the compounding portion. Some go to our customers. Some go to our compounding services where we make the medicines. The best raw materials, of course, Fagron raw materials because of the things that I just discussed with you. After that, we manufacture those materials in, again, world-class facilities brought to us by the expert leadership that you'll hear about in a moment, and again, test those products through our in-house testing operations.
Now, probably what many of you came to hear a little bit about, and that is the Wichita Warning Letter. Many of your names, and fortunately, I didn't get to see faces on that webcast. We talked about the Wichita Warning Letter in late December. I'll level set and give a little bit of history for those who may not have joined us in that December WebEx. The FDA visited our Wichita 503B outsourcing facility at the end of the second quarter of 2024. Following the inspection, as the FDA always does, they leave a Form 483 that lays out the inspectional observations that the FDA found that they asked the facility to look at and address and comment on. For the next seven months, the facility provided a response and updates to the FDA, asked the FDA, of course, "Hey, let's meet.
If you have anything that you want to see different, more from us, please let us know. We believe that this is sufficient to address your concerns. In December, unfortunately, the FDA chose to communicate with the facility for the first time since the June inspection with a warning letter. Now, the FDA has very limited means by which they may communicate with their operating facilities in the U.S. Very few. You have a Form 483. You have an entitled letter. You have a warning letter, and it escalates from there. They have very few ways in which they may communicate. It is unfortunate that the FDA chose to communicate with our facility via a warning letter.
As we see with all tier one outsourcing facilities in the US, that has been the means by which the FDA is communicating to press what we believe to raise the bar on the industry, which is not a bad thing and something we welcome. Following the receipt of the warning letter, we, of course, promptly responded with a very robust response and have been very careful to follow up with the FDA to show that robustness. As of our last response, we were close to 90% complete with our committed corrective actions.
Last week, and what I really want to focus on, and this is going to make my Q&A a whole lot easier with you guys, I expect, we received a letter from FDA that stated within our responses, we again asked FDA, "Look, let's meet if there's something we're not doing that you want to see." FDA responded by saying, "We have seen your responses. We believe that you're doing what we have asked you to do. We do not need to meet and that we will test you against your commitments and the corrective actions that you say you've taken at the next inspection." A phenomenal letter to receive.
We were very excited to receive it in only 90 days following the warning letter, which I believe is very prompt given the situation both with FDA responsiveness generally, but also with the situation in the US with the changing of the guard at the administrative level. The next step in this, of course, we will complete, and we're very close to completing all the corrective actions to which we have committed. We will then welcome FDA for another inspection to test us against those corrective actions that we have taken. Unfortunately, and Rafa has mentioned in the past, I mentioned on the December call, we don't know when the FDA will be back. That is true, number one, because even under a normal circumstance, FDA inspects facilities based on a risk-based analysis. There are many facilities that have never been inspected.
We expected some time would pass before they would come back. Now we have the added complexity of changes in the administration, reductions in workforce at FDA that may further delay the ultimate visit and closeout of the warning letter. We are very excited with the correspondence that we received. We know we are on the right track and believe that it will be business as usual moving forward. With that, I'll turn it over to Vera.
Thanks a lot, Jay. I joined Fagron just under three years ago. Last Capital Markets Day, I was actually sitting in the public listening to all the updates. For me, there were two key reasons to join Fagron. The first one is the great purpose of the company. The second one is the enormous growth potential of the business. As an operational person, there is nothing more exciting than working in a high-growth company, especially a company that really is at the forefront of a trend as exciting as personalizing medicine. I am very happy that I joined. I am very happy to be here today. If I look at how historically Fagron has grown—oops, let me go one back. Fagron historically has grown a lot via M&A. As a result of that, the operational footprint is quite fragmented.
When I joined the company, there were already a lot of initiatives ongoing to make sure that we make progress in getting more efficiencies and optimizing the operational footprint. Basically, my role is to accelerate the professionalism of the operational function. I do that to make sure that we can continue to grow and that we can continue to grow in a profitable way. If I look at our portfolio and our operational footprint, as I said, it is quite broad. It is quite fragmented. For example, we buy more than 3,500 materials. We do that from more than 1,500 vendors. We buy up to, for one material, up to nine different specifications. For example, a relatively simple product like ascorbic acid, vitamin C, we buy nine different specifications. You might think, "Hey, that is an easy one.
You can just harmonize it and simplify it. Actually, we're here to serve what our customers need. Our customers need this diversification, and they need different specs for different products that they compound. Today, we have more than 25,000 SKUs. I'll come back a little bit later with what we are doing on optimizing our portfolio. We repack our products in 10 regional production sites, and we distribute from 24 warehouses. As Jay said, of course, everything that we do is regulated by more than 75 regulatory bodies. Quality is really at the heart of everything that we do. What do I focus on as my key priorities in order to run a highly efficient global operation? First thing that I focus on is product availability.
Product availability, it means that we have to make sure that our customers receive the right products at the right moment in time. This really is one of the key areas of focus for operations. The second part is maintain the highest quality standards, delivering the right standards for each market and each channel. You'll hear us talk a lot about quality. You already heard it from Rafa. You heard it from Jay. We'll repeat it throughout the afternoon. Quality, quality, quality is everything for our company. We focus a lot on that. Third one, competitive cost. Indeed, our scale, we get better and better in using our global scale. We can buy better. We can make better strategic relationships with our suppliers. By doing that, we can actually get nice leverage. Of course, best-in-class facilities.
We need to make sure that our facilities, they are ready to absorb the growth at the right quality. Of course, they also play a key role in absorbing and making our innovations big. Those are my key focus points. If I then look on an operational technical level, what are the key levers that I pull on a day-to-day basis? There are five. First one is procurement, making sure that we make good deals, use our global scale, and make strategic deals with key manufacturers. Second one, end-to-end planning. If I know what I'm going to sell in six months from now, I can make sure that I buy the right materials and have the right capacity available. Third one, operational portfolio optimization. That is all to do with making sure that we have the right products available for the right customers.
We're not just cutting our portfolio, but we're harmonizing labels. We're harmonizing pack sizes, all of those things, always keeping the customer in mind. Manufacturing excellence, making sure that our factories operate in the best possible way. Of course, digitalization, that's across our whole operation. It is key to make sure that we have good data availability, that we have visibility, and that we optimize our operation. If we then look at some of the things that we have achieved, some tangible results over the last three years, we're very proud of some of these results. For example, in product availability, we moved from 84% to 89%. We made a 5% improvement there, meaning that we actually make more products available for our customers. This, in turn, helps our top-line growth. Right first time, I'll explain very briefly what it means.
Basically, right first time means that you don't have errors in the documentation of your batch records. This, in turn, is a very good indicator of whether your processes are working. Having a 10% increase there from 79% to 89% means that we have much more control in our factories of how our processes work. Procurement. Of course, in 2022, we were coming out of the COVID period, and we were having quite some significant headwinds in terms of logistics, in terms of cost increases of, for example, vitamins, amino acids, some of those products. We're very happy to say that we swapped that around. Actually, over the last two years, we have been able to deliver 3% of procurement savings. That means that we have been able to offset inflation and help the business in that way.
Besides this, we started implementing a professional CapEx management structure. We put a framework in place, and all our major capital projects are now being run according to that framework. One of the parts of that means that we do value engineering exercises. As part of that, we delivered $3.5 million in savings. Besides that, we have done optimization of our footprint. We moved more than 2,500 SKUs into state-of-the-art facilities. Across Brazil and Belgium, we moved from eight to two distribution centers. We are very happy with these results. Of course, there is much more to do. If we then look at where we spent our CapEx, as Karen explained, we have maintenance CapEx and a one-off CapEx. Our maintenance CapEx is always in line with our mid and longer-term strategy.
We make sure that we spend money on upgrades of our facilities, that we spend it on growth, that we spend it on quality, basically on all the topics that help our mid and longer-term growth. If you look at EMEA, for example, we've spent money on expansion of our capacity in Poland, in Czech Republic. We spent money in upgrade of our facilities and in quality. If we go across the ocean, starting with Latin America, we built a new compounding facility in Colombia. We upgraded our facility in Mexico. In Brazil, we spent money on automation of our warehouse, in quality, in R&D, in various topics. Of course, most of our CapEx has gone to the US, our biggest growth engine. We need to make sure that we invest the right amount of money and projects to be able to keep growing.
Wichita is, of course, our biggest growth engine. We have spent money in modernization, in automation, and in production expansion. We invested in automatic labelers, in expansion of our warehouse, in, of course, our insourced lab that Rafa and Jay alluded to. Across Boston and Las Vegas, we mainly spent money on de-bottlenecking our facilities to be able to keep up with the growth. Decatur invested in expansion of the warehouse and of upgrade of the clean rooms. This is all within the maintenance CapEx within the 3.5% that Karen mentioned. Besides that, of course, we also have our one-off CapEx. They are really the strategic projects that make sure that we are ready to capture any market opportunity in the future. The first one, Rafa already mentioned it, the new facility, Brownfield facility in Tampa.
In a little bit, I'll show a video of it. It really, really looks beautiful. Secondly, there are two projects ongoing, major capacity expansion in Wichita and a new compounding facility, also a brownfield facility in the Netherlands. Last but not least, we are doing the feasibility study on a next expansion project in Vegas. Let's have a quick look at our new facility in Tampa. We're very proud of the team that made this happen. It's really a flagship facility, and we're very happy with it. Let's translate everything that I've said into numbers. What are the key targets for the coming few years? As I said before, product availability really is key for us. Both on product availability and on right first time, we want to move from the 89% where we are today to 95%.
Those two make sure that we can capture more clients, that we can continue to grow and really at the right quality levels. Procurement, we want to continue to deliver 3% of savings year on year. With all the projects that we are doing, we will be adding more than $500 million in additional capacity. Of course, there are always upsides and downsides to every plan. Upsides is some of the M&A opportunities that we have. AI can help us to go faster. Also, of course, our quality differentiator. On the other hand, we know that at this moment in time, the world is quite volatile. There is a lot happening on the geopolitics. In some areas, we are seeing a bit more worker shortages.
However, as Fagron, we are really confident that with all the actions we have put in place and with all the actions we are implementing at the moment, we are very well prepared to navigate any volatility that is here at the moment. Thank you very much. With that, I'll hand back over to Rafa for the next enabler.
Thanks, Jay and Vera. We move now to the next enabler, which is specialized R&D. The first day at the university, I studied pharmacy. The professor said, "A medicine needs to be safe and needs to be effective." Also with compounding, safe and effective. A Fagron brand supports pharmacies or hospital pharmacies to compound a safe medication and a doctor to prescribe an effective treatment with patients' adherence. What is a brand? We have said it before.
It's a product or solution developed by us with our own IP intended to help pharmacies to compound a safe product and a physician to prescribe an effective treatment. We divide it in four categories. Our lab category, you remember, we acquired in 2019 a company called Gacco in Germany. There in Bamberg, Germany, we make equipment and supplies in the lab category for compounders globally. We move to the right side of the slide, excipients. Here, they play among the two categories. Excipients make a compounded medication safe because it's always the same excipient. Remember the side up at the beginning of the neonate. They also increase effectiveness for the doctor as we study also this delivery form. We go into the ingredients. There's a category we entered three years ago. Here, we develop our own phytoactives with pharmacological activity.
We have a line that's called the Tricho Concept. We have revenues between high single digit, low double digit, million euro sales. So quite interesting. We sell it globally, and we treat alopecia. We go into the last category, our testing. We provide tools to physicians to have precision medicine, pharmacogenomic testing, which support the prescription of our brands. When you go to talk to pharmacists and to physicians, you need to, of course, convince them. One great tool is the studies, the science behind. When we look at the safety, what we have seen, we have done more than 850 studies, compatibility studies, showing that our products work. When you remember the ascorbic acid of Jay, he spoke about the monograph. We have submitted for more than 80 of these products in more than 80 monographs. That's the Bible of pharmaceuticals.
Our brands are and will be there. When we move into the effectiveness, we have done already more than 130 studies which have been published. This is amongst the more than 1,000 that we have already done. This is extremely important as we are bringing all the science into three different platforms. If you remember, in 2022, we spoke about the Fagron Academy. That was our platform for knowledge. Fagron Academy has grown up. It was a nice kid. The kid grew. Now we have three different platforms. We have, first of all, the library with these studies that we are now seeing on the screen. We are having the video platform with more than 500 hours of content in many different languages. We have the formulary platform, which we are very proud of, more than 10,000 formulas to support doctors and pharmacies worldwide to prescribe and compound personalized medication. Now we are going to see a video of our formulary platform.
Welcome back. Now we have, let's say, our last block, let's say, to go with our reunions and a wrap-up, and of course, the consolidated Q&A for you who are with us here, but also for those who have stayed tuned. Thank you very much for joining us virtually. I leave the floor to Costas for EMEA.
Thank you very much, Ignacio. A warm welcome also from my side. My name is Costas Colloridas. I am a pharmacist in profession. My story begins in 2008 when actually I set up with my brother a company that has been acquired by Fagron in 2014.
From 2014 until now, I had several positions. Last year, I started as an EMEA leader. If we see the area, it is a very important area that constitutes more than one-third of the total revenues of Fagron. The main strength of this area is the diversity. It is an area that constitutes more than 1,300 employees that we are selling to 30 countries. We are not only in the market, but we lead the market. We are number one already in eight different markets. If we see in 2024, we achieved to increase our growth to 4% compared to the previous years, the organic growth. The most important thing is that we achieved to maintain our margin at the same level of 2023, even though there were some regulatory challenges that you already know in Poland. Why actually?
How can we actually achieve that? Because we have a very strategic and commercial agility, a flexibility. We can deliver scale with flexibility. We are, at the same time, also as Rafa and also my colleagues mentioned, quality with speed. Let us see how big is EMEA. EMEA is an area of approximately EUR 3.5 billion. This is like for independent researchers. How do we serve it? We serve with a full product portfolio, including the full pipeline of products, raw materials, packaging, compounding appliances that you have seen already, and at the same time also with compounding services if needed. We have a legacy brand that is really recognizable by our customers. For sure, we are not alone. There are more in the game.
There are other players, of course, not offering the same portfolio, wide portfolio as we're offering, but also with the same targets. What can we do extra in this area? We have the operational and the commercial strength to further enforce our position on certain countries like Germany, like Austria, Switzerland, U.K. At the same time, we're also looking for candidates that are willing actually to join the group. How do we achieve to be very good in the market? Because we're continuously increasing our operational capabilities. We know that the market, the compounding market in EMEA, is very dependent on us, on our products, on our philosophy, on our strategy. Talking about operations, I would like to show you a video of our Fagron Services North Europe facility that is located in Poland. It's a state-of-the-art facility.
It's a chocolate factory for a pharmacist. If we see the market right now, we see different trends. Does it remain the same? No, the industry shifts. We see three different categories. First of all, if you read the literature, if you simply Google, you will see that we are moving in the direction of RTAs, of ready-to-administer solutions for the hospitals. The hospitals need quick solutions, same for the patients. Why do we do that? We are reducing the medical errors. Do we follow this trend? We are already here in this business because we're offering the syringes in the hospitals that we can actually help them to avoid reconstituting themselves. It's only that, not only. After COVID, we have seen more and more that the asynchronous care model is increasing. People are going for asynchronous consultation.
This is where actually the telemedicine is based. And how we're connected with that? Because we are the player that is offering the raw materials, the brands, the vehicles. In some cases, we are doing also the services for them, preparing the preparation that they're going to sell through telemedicine. The last thing, as Hippocrates was saying, that prevention is more important than cure. We all believe here that prevention is moving upwards. We are also there through a personalized approach, but also focusing both in industry and pharmacy, how we can actually further improve it. Talking about inorganic growth, of course, Karen explained the whole philosophy behind our Q&A approach. It is the same for EMEA. I'm going to use some examples to help you to understand how it works. Recently, we bought Ginama and also EuroTC. Why is that?
Because we would like to strengthen our capabilities in two significant markets: the Iberian market, like Spain, Portugal, and also the German market. We did that. How come? We are offering now better solutions for the pharmacists. It means that the accessibility also for the patients is better. At the same time, we also make a geographical expansion. We went to Hungary. We went to a conservative, let's say, market, the traditional market, that through our products, we were able to bring them, we were able to modernize it, to bring it to another level. This is what actually we are doing.
Where the focus is in the end, the focus is really on acquiring companies that are making compounding services because it's the most interesting part also for us in terms of profitability, but at the same time also because we have the direct access to the clinics, to the hospitals, and to the patients in that case. We will continue looking for companies that are linked to our foundation, the essential business, APIs. At the same time, looking like also the high-buyer countries where actually we are more successful, we will look for innovative companies that are bringing added value, synergistic effect for the long-term future of the company. If we see the roadmap from 2025 to 2030, we want to be the market leader in every single country.
We're going to strengthen our brands because brands, again, as Rafa said many times, it's not like simply products. It's a platform. It's a vehicle. It's a thing that makes the compounding steps easier for the pharmacist and also the things that make the physicians to generate prescriptions because it's easy to write a prescription with a brand. Moreover, of course, we're going to expand the compounding services focus on the steroid business because we see more and more that hospitals are outsourcing. Why? Because it's expensive for them or in some cases, they are missing the knowledge to do it. If we deploy the right capital, as we're going to do for the right acquisitions, focusing on the long-term strategy, this plan can actually give us a continuous mid-single-digit growth. The most important thing is that an EBITDA range of above the group average. Now I'm going to hand over to Rafa to give us a nice opportunity that we're having.
Thank you, Costas. Now we go into Asia-Pacific. At the last board strategy meeting, we were given a mandate to also explore the region, which we are commercially not present. As we have said, we have a quality and procurement hub in Asia, not commercially. We are exploring, of course, opportunities. 60% of the global population lives in Asia. We see wealthier Asians. The trend for prevention and lifestyles is also there as it is in out-of-pocket markets like the US, like Brazil. We would like to explore this region. There are markets like Australia where our regional competitor in the US, Medisca, is having a leading position. Interesting markets for us.
We're going to do it in the next phase of growth, sorry, through a joint venture or an M&A. It is a region that we're exploring. As we said, the priorities for the next phase of growth are, of course, exploring this region together with white spots in EMEA, as Costas was saying. Now we go into Latin America, a region that we look at with a lot of joy as it is the innovation powerhouse and, of course, the operational powerhouse as well. Remember, we said about the operational capabilities that we have in Latin many times on the volumes that we deliver from our Latin central distribution that Vera was explaining, 30 metric tons on a daily basis. This is huge. This is because Latin America has a country where compounding is an essence of life. That is the Brazilian market.
More than 2 million scripts are being prescribed every single day. This means that a lot of product is going through not only our facilities, but all the other facilities. You also have very important markets like Mexico, like Colombia, Peru, a very interesting market, Chile, now Argentina with more economical fluidity. You see also other opportunities in other markets there as well. When you look at our financial historically, we saw a bit of a dip lately. This is because during COVID, many Brazilians were looking for preventive therapies in order to be safe of the virus, of course. After the COVID period of time, they decided, "Okay, let's go to leisure. Let's travel. Let's go out," in fact. We were calling even physicians, "Hey, what's going? What's happening? We don't see as many prescripts as we used to see." Right?
They said, "Man, people are canceling the visits. So we need to be a bit patient." Right? Together with that, if you recall when we were talking about complexity, we had a competitor of us. Remember, in Brazil, we have more than 30 players, which was joining a big group backed by private equity. Some competition started to arise. We took the playbook that we were describing before: short-term market position, efficiency, mid-term innovation, brands. We saw it, more than 50 brands the last three years, and long-term maintaining the highest quality standards. Therefore, we could step up. When we look at our position in the markets, we're present in Mexico, number two, very interesting market. We see a lot of opportunities there. Colombia, compounding services, somehow smaller, but together with Peru, Ecuador, opportunities there.
Again, Brazil, the powerhouse where we are absolute number one in that market. Of course, as the market is growing, we also grow with the market. We were seeing 2 million scripts when we started 2010. The market, and this is independent data you can find on the internet from AN PharmaTech, that is the National Association of Compounding Pharmacies, it was 1 million scripts a day. Of course, the market is very dynamic. We also helped the market with 150 people to increase the scripts there. Of course, we also need a factory to produce our goods there. Now we're going to see the most modern, the biggest, the most efficient repackaging, CGMP repackaging site in the world. Yes. If you recall this one, we announced that we were building this one during the last capital markets day in 2022.
We have been entertaining this new capacity in the last three years. What we're going to see in the future, of course, is this market is going to grow. There will be underlying growth driven by innovation, personalization, prevention, and lifestyle. Again, it's very important for us to keep the strong operational footprint. Vera spoke about the distribution center in Brazil with a lot of innovation. We have seen the new innovative items there, how they grow. We also have new products in the pipeline. When we talk about inorganic growth, as you are all aware, we acquired two companies pending competition clearance. Purifarma will support us not only with volumes, but also with new segments, industrial segments that also need raw materials and branded items as well. Of course, Ingeplast, as Karen was explaining, now we have the capability to produce our own packaging.
Remember, 2 million scripts a day, meaning 2 million of packaging a day. We now have the capability to make these ones. Financially, what does it mean? High single-digit organic growth. Q1 was an excellent start for the region. Of course, our profitability will have also a step up with this combination of operational excellence and, of course, brands and innovation. Now we moved from São Paulo to Austin, where the powerhouse of the group, Andy.
Thank you, Rafa. Okay. Good afternoon, guys. Thanks so much for being here today. I'm Andy Polito, and I lead our business in North America. By way of background, I joined the business in 2018 via the HumpCo acquisition when we sold our family's business. We spent two years integrating the company with Fagron's US foothold at the time.
I assume the role that I'm in now as the leader of our North American business. If you recall, at the CMD three years ago when we were in this room, we spoke a lot about our recent Letco acquisition and the commercial synergies that it would bring us. We spoke about our product portfolio at FSS, how we needed one-stop shopping, IV bags, OR syringes, CAD cassettes, and epidurals. Of course, we spoke about our $125 million run rate in Wichita that we were going to achieve. Almost three years from now, and we achieved that $125 million and continue to deliver strong growth in our business, both in absolute terms and relative to our peer group in the U.S. In 2024, we reached $383 million in revenue, which represents 44% of Fagron's overall revenue, representing more than any other geography in the group.
What's driving that is a 74% portfolio in our compounding services and 19% in our essentials business, both with very strong underlying demand. When you look at our organic growth, it remains robust, having just finished 23.1% in 2024, following a peak of about 25.5% in 2023. During that time, our margin profile has remained quite stable as well, having just finished 19.5% in EBITDA. The region also benefits from a great team. We have 1,441 teammates today, or that's as of March 31. Recently, we announced the closure of our Care First deal. That actually takes us to around 1,550. We have 63 pharmacists, which is best in class and industry-leading for our US market.
When we think about our scale and our marketing position, we're number two in the brands and essentials segment and in compounding services in each vertical that we operate, hospital outsourcing and lifestyle and prevention and health and wellness-focused pharmacy. When we think about our market, today it's a EUR 5.7 billion market, increasing to EUR 9 billion by 2030. There are very nice underlying trends that are driving that growth. We'll speak about that here. When you think about where we operate, our geographic diversification and our business lines in the country, we're in key distribution hubs, central US, our business in Wichita and, of course, in Austin, southeastern US, Tampa, Florida, our state-of-the-art facility, a new 503A that Vera showed a video of that we're really proud.
We have great geographic footprint now with our acquisitions of Fresenius Kabi's 503B, as well as our recent deal in Care First. Of course, our business in Las Vegas gives us West Coast distribution as well. I want to show you guys a quick video of our facility in Wichita and Boston. Our FSS business that we're really proud of. I could watch that all day. Okay. You guys just saw our state-of-the-art facilities in Wichita and Boston. We're really proud of it. Let's talk a little bit about what's driving the growth in the region. Again, EUR 5.7 billion in 2025 to EUR 9 billion in 2030. We see a few really key trends that are shaping up. Of course, I think in almost everyone's presentation, we've spoken about the quality and regulatory framework and the shifting dynamics that are occurring.
We know for certain that our regulators in the US are getting more stringent. They're requiring greater, higher quality standards. We are shifting regulations. Not all of that is bad. Some of it is very good for players like us who've made great investments in our infrastructure and our teams. We look at changes in USP for state boards of pharmacy. USP 795 and USP 797, which deal with non-sterile and sterile medicines. We look at the introduction from the FDA on draft guidance as it relates from 503B to 503A, which paints a phenomenal regulatory pathway for players like us who have four 503Bs. We expect this trend over the next five years of shifting regulatory environment to continue to play out. We feel that we're very well positioned to capture that as it does so. Telehealth.
It has been very popular recently in the last few years, or at least post-COVID, where you have major players like Hims & Hers Health Roe that are speaking to millions of consumers and patients on our compounded medicines. We are really excited about this. We think that it introduces not only new patients and consumers to our market, but it also drives categories that Fagron is deeply embedded in, such as health and wellness and lifestyle and prevention with our Anazayo Health brand. That trend will continue on, and that will really be the key underlying growth factor along with the hospital outsourcing business that drives kind of that EUR 5.7 billion-EUR 9 billion trend. Let's talk a second about the short term. As we have all seen in the last few weeks, there is a lot of talk around tariffs.
As a matter of fact, when I was flying over here the other day, we had a set of information. By the time that I landed here in the Netherlands, it has a new set of information. We talked about that. We had a dinner last night, and it changed again. It is quite dynamic, to say the least. I will not comment on how this thing shakes out, but ultimately, policy will take shape. When that does, we will deal with concrete financials and the impact to our business, if any. At this point so far, we have seen a very limited impact. What I do want to take a note of is whatever plays out and whatever policy gets put in place, it will impact the entire pharmaceutical segment. There are a few key areas that we are well positioned to capture when that does so.
Firstly is our contractual pricing mechanisms with our major GPOs and IDNs, as well as our smaller transactional accounts. We account for full pricing pass-through in events such as these. We work closely with our customers to ensure that it's done in the correct way. We have operational agility like nobody else in the US market. Because we're a global company, we have factories not only in the US, but in Latin America and in Europe that we have access to. When there is policy that's put in place, we'll be able to act very quickly and appropriately. Lastly, the global scale of a player such as ours. We buy more active pharmaceutical ingredient and excipient material than any other player in the US compounding pharma market. That gives us a particular advantage when this thing does shake out, however that may be.
Moving into some of the key initiatives for our midterm success. Again, we've talked a lot about quality. That's an underlying theme here. It's not going away. Quality for us will be synonymous with market leadership, and market leadership will be synonymous with quality. It is very important that we stay ahead of the regulations, continue to invest in state-of-the-art facilities, and create a very unified global quality structure during this process. Automation for us, particularly in compounding services. If you remember at our last CMD, we spoke a lot about we need to expand our SKU count. We have to have one-stop shopping. We need to be able to be a full-service solution. We did that. It's played out quite nicely for us in the marketplace with our customers.
As we enter this next phase of growth, we need to standardize, and we need to move the market into certain presentations so that we can more efficiently serve them and realize the efficiencies and the economies of scale of a growing market such as ours. The automation will be really, really key in nailing that standardization and then getting ramped up over the next few years when we introduce this. We have made a lot of investment in our facilities, so making sure that we deliver on budget and on time on our major capital projects, particularly with the Wichita expansion and with our Tampa facility like we have done. It is going to be very key for us realizing our midterm ambition. Lastly, our brands and essentials business.
For us, the compounding service segment has really driven the growth, 74% over the last few years, but we see substantial opportunity, particularly in our brands. We want to capitalize on that. It's a strategic priority of ours globally and a strategic priority of us here in the U.S. We are taking a pragmatic, focused approach on it. We want to utilize the science and the R&D and the clinical data that our team globally has put together, and we want to apply it to our local markets with our prescribers. If we think about it from a competitive standpoint, we're really the only one doing this at scale in our market.
It is imperative that we not only utilize the infrastructure that you guys saw out there in the warehouse for the folks that are here in person, but also the presentation that Rafa showed earlier on our formulary and using our 63 pharmacists to talk to our pharmacy partners and customers in terms of using this clinical data in a way to not only grow their business, but help patients as well. I would also note in our midterm guidance, realizing our profitability goals and our step-up will be key in nailing this brand strategy. On M&A, the North America market continues to remain a robust market for M&A, particularly for bolt-ons. Over the last few years, we have done four deals, mostly very focused, disciplined deals that give us geography and market consolidation. The Care First deal enhances our product capabilities with the top-notch, leading 50-state licensed pharmacy for non-sterile medicines.
Of course, the Boston facility giving us sterile-to-sterile capabilities and, like Karen mentioned, a top-notch customer and great geographic presence. What can you expect going forward from us? I would expect more of the same, a very disciplined approach, opportunistic. We have the assets that we need today to be able to hit our midterm financial goals and our business plan. Anything that we would do would be to further increase our product capabilities, geographic coverage. It would be adding our sterile-to-sterile capabilities or our registration capabilities to protect the business that we're building, particularly on the sterile side. Okay. Lastly, our focus for the midterm. As you guys can see, we have a very clear and ambitious focus for North America. First and foremost, it is maintaining the highest quality standard.
If we can do this very well, which we will over the next three to five years, we will have market leadership in compounding services and brands and essentials. You do not get the market leadership without having top-notch quality. You cannot have top-notch quality without making the investments like we are doing now. This one will be very, very key for us, further enhancing our operational capabilities. Again, the automation projects that we have underway in Wichita, along with the expansion, will be very key for us hitting our financial targets for the midterm. Lastly, if there is opportunistic M&A that we can focus on. In terms of our guidance for the next three to five years, we expect low to mid-teens organic growth on the revenue side that will be mostly driven on the back end of our business plan.
This year, of course, you have the GLP-1 headwind that will come to an end in Q2. We also have 50-state licenses coming with our 503A Tampa facility in the second half of the year that we're really excited about. For our profitability, broadly in line with the group's average, as we realize our automation plan and our facility expansion that's coming online in 2027, you'll see us track more closer to that during that time frame. Okay. Now I'll turn it over to Rafa and Karen to wrap us up.
Thank you, Andy.
Yeah. Maybe to summarize, first, from a financial perspective, I think it's good to just go back to our guidance and our compounding for growth plan and maybe give a bit more granularity on that. If we look at 2025 guidance, which we published this morning, we reiterated the guidance that we have given in February. That means that for sales growth, we expect a mid to high single-digit % of organic growth. As said by Andy, the biggest differentiator there is the tailwind we had on the GLP-1s. We need to stop with that, and we will. We expect to be in the mid of that given range, depending on the magnitude we have of sales in the second quarter. After that, we stop with selling the product.
We expect a slight improvement in profitability in 2025, as said, and a CapEx of around $3.5 million, excluding the one-offs that we explicitly announced. If we look at our compounding for growth plan over the long term, we expect a high single-digit to low double-digit organic growth, as said, against constant exchange rate. In 2026, we will still see impact to quarters of not having the GLP-1 tailwind anymore. You will see that translated in the North America region. Other regions, we guide for the numbers they have given today on the regions. Revenue margin, a nice step up to 21% by 2027. After that, we expect a gradual increase when the projects, for instance, the one that Andy spoke upon in Wichita, go online. Strong cash flow conversion, operating as well as free cash flow conversion, a strong element of our business model, and clear policies on leverage. 2.8 is our internal threshold. We have the ambition to doing M&A, but disciplined and also safeguarding our balance sheet. Capital allocation driven and focused on growth, benefiting from all the potential we see in the market organically, but also M&A. On top of that, a dividend depending on the situation every year.
Thanks, Karen. We came to an end. What we have seen here today has been an evolution rather than a revolution. We understood the market where we operate, the personalizing medicine market, the pharmaceutical compounding market. We also understood how compounders help support patients' lives throughout all the stages of our lives, right? We have also seen that during the last three years, we have shown strong execution capabilities together with Dutch financial discipline. We have a clear, easy-to-explain and execute strategy. Remember that house. This is powered by more than 4,200 people with a strong company culture. Remember, employee engagement is 7% with strong company values and a clear purpose, which is together, also with you, we create the future of personalizing medicine. Thank you very much. We start the Q&A. Thank you.
Thank you very much. It is the most, or not the most, but at least an important time of the session. We have a lot of questions also from the online audience. What we are going to do is that we are going to take a few questions from you guys, and then we are going to switch and try to summarize topics from the audience. Okay, Frank, please here, Nina, yeah, or Hector.
Yes. I am Frank, not the. Thank you Ken. Question on the EMEA business. You think that you can accelerate growth there, and compounding services is one of the main drivers here. As far as I know, it's compounding services currently mainly in the Benelux. What do you see in the other countries? Do you see the regulatory frameworks easing, and how do you think you can capture the growth opportunities there?
Thank you, Frank. Maybe Costas, if you can.
Yes. Thank you very much for your question. It's true that the compounding services started from the Benelux area because they were very innovative in the way they were thinking, because they understood that it was not possible that every single compounding pharmacy would have whatever is needed to make compounding. At the same time, at the EMEA level, we see that we also have compounding services like in Israel. We're doing also Czech Republic. We have also in South Africa. It is not only in Benelux. What we are doing is that we're doing the mapping to see where actually it is allowed. Regarding your question, if this is something that is going to change, there is also the resolution of 2016 that explains that it's like an advantage for a country to have facilities doing compounding services. Overall, yes, we see that there is something that is going to grow.
Yeah, to complement as well, Costas, Frank, what you see is that, for example, in the US, these regulatory changes go much faster than in Europe, right? That normally takes more time. However, we believe that at any point of time, regulation will be supported here.
Okay, thanks. A question on the growth CapEx, the CapEx projects. It's a two-week project. We have Wichita and in the Netherlands, and you're exploring something in Las Vegas. Will those three projects be enough to, let's say, have the capacity to hit your targets, or could there be more growth projects along the way?
Yeah, very good question. Thank you very much. I think with the projects we announced, we have sufficient capacity to do our compounding for growth plan. If we split it per region, we invested historically in EMEA, as you all remember, maybe the Poland facility, which was also a brownfield, very interesting metrics, but we upgraded that facility. We showed a video today of that. We have sufficient capacity for EMEA to grow on the back of that. All other investments that we need to do in facilities are all part of the maintenance CapEx. If we look at the Brazilian region, we have a very big facility in Anápolis, as we also saw a video of that, invested in the recent years within our maintenance CapEx, fully equipped to deliver what we need the next couple of years in Anápolis.
We have the U.S., which is, of course, our growth region, where we invested in a new facility in Tampa, which will bring the additional sales. We have sufficient capacity there now to grow the next couple of years, same for the Wichita expansion. We invest $39 million. We get an additional $200 million of capacity, and we expect to utilize that quickly. The Vegas part, indeed, we announced that it is still in the phase that we need to finalize metrics, get formal approval. With that, we are sufficiently equipped to grow the next couple of years. Maybe if I can add also a bit on the numbers, because 3.5% of CapEx is low for a company as ours. That is the reason why we have a very strong cash conversion.
However, if you take, for instance, the Tampa facility, it brings us to 5% max because it's split over two years. You go to 5% max. Same with these new products where we announced, excluding Las Vegas, of course, because we're not there yet. It slightly increases the percentage for one or two years, but we also benefit of that. Our strong cash conversion remains an important topic. If we add 1% or 2% on top of that, for very good reasons, we believe, I think it's a very good investment that we should do.
Yeah. For sure. Always when we discuss this project, this brownfield project, Frank, with the board and also with the rest of the teams, you see that for us, we take advantage of the licenses, right? For example, the Wichita expansion and also the culture of quality that we were saying. It is nice to have M&A. We like to have M&A, of course, because it adds value to us. However, when we do these kinds of investments, our teams are there, leadership is there. All the things that you have seen today are in place. The growth is faster.
Yeah. Maybe just to add one, because a good example for the people that know the company for a longer time, Wichita was also an investment, a brownfield, right? We did a small acquisition, but then we did a whole new facility. Look where we are today with that facility. We do believe that it is an attractive business case to invest in that region. Other regions, we can in the next couple of years in our compounding for growth plan, all upgrade with the maintenance CapEx that we announced.
Okay, thank you. My last question, the veterinarian market, is that anything which is on your radar in your plans at all, or is that just, yeah, what are your thoughts on that?
Yes, that's a very good question, Frank. When you look at the therapeutical applications where compounding is useful, veterinary is one of those, right? We have done the exercise because we acquired Wildlife, the vet compounder. We have seen that in our portfolio also in the BNE. We serve approximately 10% to the vet market. It's huge in countries like the US, as an example. Now Latin is growing, Europe as well. We see an evolution in that market. We have capabilities from both the brands and essential dermatologists and the finished product. It is up to us to expand that segment with the three platforms that you have seen today, right? In the formulary, we have not yet a comprehensive vet form. However, we intend to invest more there because we believe that this also is a trend. People spend more on their pets than sometimes, of course, it is said, than on themselves. So we have the seed planted for future growth there.
Okay, thank you.
Thanks, Frank.
Thank you, Frank. The next question comes from Usama.
Hi, this is Usama from ABN AMRO. I have two sets of questions very fast. The first one is related to tariffs. I know it is a moving object, but in case the worst-case scenario realizes, how fast can you pass on the prices? Is it six months, one year? If you could just comment on it. The second one is you have an ambition to grow your brands and essential business. Just on a helicopter view, what would your unique selling point be for your brands and essential business? Is it pricing, product portfolio? What would you base it on across different geographies for the medium term? Thank you.
For sure. The first one, please, Jay and Andy, if you can come on stage, the two of you to comment on the first one.
Yeah, I can comment on the pricing mechanism. We have pass-through pricing. While we do have contracts in place with major IDNs, particularly on the hospital outsourcing side, we do have mechanisms in place to immediately pass price on if necessary.
Okay, thank you. Regarding the brands and essentials, unique selling point, as we have seen today, they are explained as on the SKU breadth. That is for us the starting point. We need to understand what the customer needs. Of course, compounding, you have seen that it is very varied, right? There are a lot of personalized, patient-specific formulations. It is somehow complex. If we can manage complexity, we win. That is the first point. This is being translated in product availability, which we made a nice step up from 85% to 89%. The plants are up to 95%. That is first. Second, that would be service, right? Second, that is not well set in the marketplace with our customers. That is something that we need to work a bit better.
We recognize this one is our unique and superior quality because we're the only global company in our segment, the only global one having operations in India and China with procurement and quality. We have quality people, three quality people on site visiting the makers, as they say, the producers, they say the makers. We have people in China also going to the producers, cutting deals to bring the products in the different geographies. That is the second one. On the third, that would be pure innovation, what we have seen also, Usama, today. That's a very good question that you're raising because we can complement that on the brand side. Once the Pentavan, as an example, remember the transdermal cream, 90%, it's on the pen of the doctor, normally tends to stay. You have seen the revenues.
We started with 2 million, and it went to 6 million. You see year in year an increase, new patients, right? Also new doctors that come there. Of course, when the customer buys the Pentravan, normally it's for BHRT, bioidentical hormone replacement therapy, right? Would go with progesterone as an example. We try to bundle, okay, you want the Pentravan, for sure you have progesterone with us. We try to bundle this one. These three would be the main key differentiating factors. Thanks for the questions, Usama.
Thank you. We are now taking some questions from the online audience. We thank you for your participation because we got a lot of questions. Starting from the compounding for growth plan, people asked about how to frame the new midterm guidance in terms of the annual trajectory for revenue growth.
Yeah, so it's a good question. I try to give a bit of granularity on the growth. We gave a high single low double digit guidance of which we believe that we will accelerate throughout the plan. Several reasons. First of all, the phasing out of the GLP-1s, which we have in 2025. You will see that translated into the numbers in Q3 and Q4. You will also see that next year. In 2026, Q1 and Q2. That will have an impact on our growth numbers for those two years. However, the underlying attractiveness of that market will remain. After that, we also see in 2027 that the new facility will go online in Wichita, which we are well positioned to take market share immediately and utilize that facility. We expect that growth to build up towards the end of our plan and then towards the back end of that range of guidance that we have given.
Thank you, Karin. Following up on this, on our margins, people are asking how should we think about margin by region in the medium term or by full year 2027?
Yeah, so we gave an overall margin of 21% by 2027, which is a step up compared to the 20% we currently are. If you look at the different regions, there are different opportunities and the enablers, of course, and the magnitude of that is different in every market. We see for Europe that they're currently at 21.5% margin, and we see a slight improvement throughout the period driven by innovation, as you said today, of course, but also some operational excellence initiatives that we have. In the U.S., we expect a step up every year, basically on scaling the facilities that we currently have and the other drivers that we have. We see U.S. profitability, which is currently at 19.5%, moving towards a group average over the period of time. The period of time is 2025 until 2030.
In the midst of 2027, they will be below the group average still, but they have shown a nice step up by the enablers that we showed today. LOTOM had some dynamics in their profitability driven by that competitiveness we saw heightening during the early phase of 2022 and 2023. We see that that is coming back again, having a positive impact also on our profitability. We are slightly over 18% currently, but we expect that we will move towards 19%-20% over the period of time of the plan. They will show a nice step up already this year on the back of that. Keep in mind, H1 always less than H2. We have strong seasonality in that region. However, it will be at around 19%-20% over the period.
Thank you, Karin. Excellent. Questions from in-person people? Yes, please, Thomas Vranken . Thank you.
Yeah, I just wanted to follow up on the entire tailwinds that you have had with GLP-1. Looking forward, are there any lessons learned in terms of benefiting from those types of drug shortages? Is that something that you think you can turn into some kind of recurrent business model because it was not really touched upon yet? Just wanted to.
Yeah, that's a very good question. What we clearly see is that accessibility, drug shortages is a tailwind for our business, right? We were explaining about the product files that pharmaceutical companies need to update, and sometimes they decide not to invest there. This product, or this therapeutical category in their portfolio falls. Compounding is a great tool. Thirty kilometers from here, Hans, at Tiof arma, we produce many products for compounds for drug shortages. What we normally do, and when you take this specific case on the GLP-1s, we have taken this opportunity to gain new customers, right? Customers that for whatever reason were not entertaining our products and services, they have knocked on our door and we have said, okay, we welcome you, of course. We want to serve and we want to support. Can you also please bring other types of items or services that you would like to get from us? This is what we do. If I'm not mistaken, right, Andy, we have gained thousands of new customers at our Naseo business.
This is how we tend to tackle. Always please remember, GLP-1 can be an exceptional drug shortage, drug shortage, sorry. However, the underlying trend, it's growing.
If I can add a second question to that, just with regards to the M&A, and it was quite a lot of detail given already. Lots of opportunities where there is growth. Based on what you said, I understand it's mostly ad hoc and opportunistic in the sense that if you identify nice targets, you would go for them at attractive pricing. Is there also like a certain priority in terms of regions? There is still quite a lot of areas in EMEA, for example, but also APAC that was mentioned at some point. Do you have a certain priority in mind, or is it just opportunistic across those regions?
Sure. We can comment, the two of us, if you want. You start, of course. Always leaders first.
Yeah, so we have a pipeline. As said, we acquire small to mid-sized companies, usually family-owned. We try to stay a bit away from the PE exits and really target family-owned businesses, small mid-sized companies. We have a wide pipeline of that, which we nurture, let's put it like that. We invest in that pipeline, whether it's not executed on the short term, we feel positive that there's an opportunity maybe on the longer term. Of course, we have our internal priorities on where we want to focus. This year, APAC will be a new region, so there's focus on that. Again, no big transformational step in a new region. We want to do a small step, get to know the region, get to know the customers in the region before we explore other opportunities.
Of course, US, as you can imagine, there are a lot of organic growth initiatives there. Also there, I think focus first will be on the organic growth initiatives. If there is a consolidation within the 503A sector, we will look at that and add that. I think it is depending a bit on where we are in the pipeline, on how we prioritize. Want to add something there?
Just for sure, Karin, well said. When opportunistic, what we mean, right, from our continental Europe English, right, is that we have a clear roadmap. This market is highly fragmented. Thousands of companies in this field. In Brazil, we have 30 providers for raw materials. We have 9,000 compounding pharmacies. The same in the US, there are five to seven providers to the market, quite consolidated. However, there are more than 2,000 compounders, right? The magnitude is huge in this respect. We tried to show today that on Celin's slides, the experience that we have in this market, you have seen Costas was coming from an acquisition of the company that the two of you created together with Savas. Andy, your family company, right, with your dad, your uncle, Geraldino, that is not here present today.
He was this business leader of a company in Brazil, and the owner was not present there, so he was managing the business, right? Myself, I grew up when I was 21 years old with Hans, helped a lot there. We know the market quite well, right? We know all the, not all the players, but we know the majority of them. When we use the word opportunistic, it's, for example, Guinama, the acquisition we saw Eduardo. Eduardo has been his entire life working for the owner of Guinama. That's Ignacio. Ignacio is now 72. He's a great guy. He's a pharmacist as well. He started the business 30 years ago, 30, 40 years ago, and now he's 72. After 20 years, believe me, three times a year, having lunch with Ignacio, with Eduardo, the three of us, close to the beach, right?
Between Barcelona and Valencia, hey, come on. No, no, no, Ignacio, no, no, no. Now I'm seventy-two. Now it's time to, yeah, to join the family. He's very happy. We still have contact with Ignacio and Eduardo, of course. The same, we grew in the company. That is when we try to stay opportunistic, but our roadmap is disciplined and very thorough.
Thank you, Thomas. Returning back to the online questions about the businesses, what has been the progress you made on optimizing the non-sterile business and registration business in the Netherlands since the last CMD? We'll start with this and then we'll follow up with more.
Yes, maybe. Costas, you can help.
Yeah. It is true that, okay, even though I joined that role last year in July, I'm aware of the situation also the previous years because I was being in the company and being involved in those decisions. It is true that for the non-sterile business, we did a lot of steps because we tried also to consolidate also to one producer. This is like we cooperated with Tio on bringing the volumes to them, which helped us a lot with improving our profitability and also the availability. Continuously the accessibility for the patients in the market. Starting from 2020, when we realized that for certain products, we have to register them, our decision was based on the fact that we have to register products. Of course, it's not the intention to become like a generic company, but in the end, to create registered products that they also have innovation and link to the niche market. There we had like a lot of registrations that they gave us also significant revenue and profit. Of course, we continue working in that direction to further improve it.
Thank you. Okay, thank you, Costas. Regarding, let's say, our suppliers' partnership and the relationship we have with them, we have been asked about how if we can elaborate on our relationship with Hims and if we work together with them on the pipeline or product development, Hims & Hers.
Yes, for sure. Ignacio, maybe Andy, you can comment, of course, please.
Without commenting on any specific customer, because we have confidentiality contracts in place with our customers, at least the large-scale ones, I will add that we are all over this telehealth thing. It's a huge trend in our business. It will drive growth in the region. It has for the last two years, really, at scale. It will for the next five years. We are not a telehealth platform. We are compounding pharmacies and we serve compounding pharmacies. Our ability to have great partnerships with these guys and Hims & Hers is a phenomenal one, but there's also many other great ones is essential for our growth plan here in the next few years. Because of our capabilities, and it's a competitive market, but with our capabilities, we have excellent access to R&D. We have the pharmacists they need. We have the formularies they need.
We own our own analytical testing laboratories, which is really important in the research and development process. We are a unique partner for these types of companies to help them scale their business and to help them launch new products. They are phenomenal marketing companies, but what we found is that most of them are not compounding operational companies. They are marketing companies. They know how to talk to patients. For us, we have many partnerships, but without commenting on that specific one. Hopefully, that gives a little color with the way that we think about it and where we are focused here in the next few years.
Yes, please.
To the extent you have difficulty passing along a 125% increase in the cost of your APIs and excipients, what's the meaning of this comment here on the slide, "Brazilian operations as a strategic hedge. Local production provides optionality"?
Yes, for sure. That's a great question. Maybe Vera, as you're leading project Atlantic, you can comment on this.
Okay, I think in general, when you look at the tariff situation, what Andy also said, it's very fluid. Yeah, we feel that we are better equipped than the majority of players because of the breadth of manufacturers that we work with and that we have direct partnerships with. Specifically in Brazil, we have set up an operation there that is able to also provide products for North America, for Canada and for the US. It is a lower cost base. Everything that we produce there, we will have the benefit of the lower cost structure that we operate at in Brazil. I hope that answers your question.
Thank you, Vera. Good. Any other question from the audience? Please do not be shy. Maarten.
Maarten Bakker from Innopay. I lost them one by one. I think the first four are Jay. You mentioned you've got approval from the FDA. They didn't visit you and they will do a next test later on. Purely hypothetically, when they would visit you again and they will find something which is not in line with what you said you would do, what will the FDA do?
Thank you. First, of course, it is difficult, if not impossible, to speak in hypotheticals, especially when you are dealing with FDA and dealing with a regulatory scheme that continues to change and to increase. To the extent, number one, if we tell FDA we're doing it, we're absolutely doing it. That would be not a very good idea to take another approach. If FDA were to find an issue, a nuance that they would like to see different, generally that would come in a 483 as long as FDA saw that we were essentially doing what we were saying we were doing. They may want to see something a little different. If so, that comes in an inspectional observation where we would then set up corrective actions to take place following that inspection. Anything else they find that may be different than what was covered in the 2024 483 or the corresponding warning letter, of course, would come in a 483 observation and we would start the corrective action process all over again. I hope that answers your question.
Nothing really scary to expect from the FDA. I would hope not. I mean, again, it is impossible to know until they come back, but our quality team is top-notch. Our North American quality leader is top-notch. I do not anticipate any issues.
Thanks. One question for Andrew, if I may. In the presentation, you mentioned that you want to become the number one in BNE. Some questions, who's the number one and what's the gap between one and two and how do you want to close that gap?
We benefit from excellent competitors in the US. We really have two principal competitors, Medisca being the number one player, us the number two, and PCCA number three. We all have our points of differentiation, of course. What I see that Medisca does incredibly well, they have a phenomenal and very easy-to-use ordering platform. They have great scale and great selection on their active pharmaceutical ingredients. They have a nice brand selection as well. What we need to do to close the gap is we need to change the game. That will come in the form of two different ways. Way number one is a phenomenal brand strategy. When we sell commodities, we go to market with, "Here's our commodity. Here's our testing. Here's our source. Here's our price." Within all commoditized markets, price is very, very key when there are not other points of differentiation.
That's historically how the market has been treated or how the market's been served in the U.S. When you go to market with a brand, we talk about our science. We talk about our R&D. We talk about the clinical benefits. We talk about the studies. We compare head to head. What we see is we have a competitive advantage in this space. This competitive advantage with the changes in regulation, particularly in 795, which deals with non-sterile medicines and the beyond-use dating that you can put on them, our R&D and our science allows us to compete with an edge because we have studies that the marketplace does not have. We need to lean into that and we need to do it now. The last year and a half, two years, we've been focusing on serving the market.
The market has experienced a nice tailwind with these GLP-1s. Anyone that had available capacity, particularly on the sterile side or had sales forces that needed something to do, they all went here. We serve them, particularly in our brands and essentials business. As that comes to an end in Q2, we'll get back to the fundamentals of the business. That is leading with science. It's a strategic priority for us. It is making sure that when we lead with science and we help that customer develop a plan for that particular brand, we follow through with the whole shopping cart. It would be a shame if a customer came to us and we only sold them one item that we wouldn't have done a good job.
We need to take that brand approach and expand upon it with our science and also add our actives. That's how we'll compete and that's how we'll take over market share in a traditional market. Now, how do we want to change the game? 503B to 503A, regulatory changes are phenomenal for us. When we look at our two primary competitors in brands and essentials, Medisca and PCCA, we're the only player that actually has compounding experience. We own four 503B facilities and we have right now currently three 503As. We'll soon be winding down to two after we fully transition our existing site in Tampa to our new state-of-the-art site. We know compounding. With the increased regulatory changes that will occur in the next five years, you will see a much more consolidated marketplace.
There will be players that do 10 compounding scripts a day that say, "You know what? It's just not worth it for me to compounding. But I have a great relationship with my prescribers. They need compounds." We have to, in our brands and essentials business, use our assets to help serve that base. That will differentiate us dramatically versus those two players. If we can do number one, focus on the fundamentals, lead with the brand strategy, do number two, change the game with 503B to 503A, we'll be in great shape and I fully anticipate that will take us to the top position.
Thanks. This is great. Lastly, Fagron actually already had disclosed one target for 2030, which was not repeated in this presentation, but was mentioned in your annual report. That is a target for Fagron brands of 30% of revenue by 2030. Also, when you look at the possibility of reaching that target, it sounds impossible to me because last year you already went down to 15%. If Fagron continues to grow by some 10% to $1.5 billion, then brands should grow by roughly 25% per annum till 2030. What is going on here? Is this target still in play at all?
Can I comment on that?
Yes.
Yeah. It is a fair assumption. We adjusted that target. The reason that we have done that is because compounding services is becoming bigger and bigger. We said brand strategy will remain. It is currently 15% of total sales. You see huge variations through the regions. We believe that brands are really important. However, if you have a target where compounding services is accelerated growth, especially driven by the US, that target is difficult to get. We adjusted the target in this communication to being 35% of the BNE sales. We think that is a realistic, achievable target that we will get based on the items we discussed today on brands and the initiatives we have. It is a fair assumption and we adjusted to this one.
Thank you.
Thank you very much, Karin and Maarten. We need to get back to the online audience to touch on our enablers. Operations, Vera, what does it take to bring up product availability and first-time right? Is the low-hanging fruit gone and now it gets more difficult, or is the focus now to build from where we are? It is kind of a, yeah, to elaborate on the product availability and the first-time right, please.
Right. Very good question. I think in general, one of the things that we need is discipline in our processes. If I look at product availability, a lot of that comes down to one of the levers that I mentioned, which is end-to-end planning. We really need to make sure that we know what we need in the market. We can actually predict that if we use our data, if we work with that, then we know what capacity we need in our factories and we know when we need to order which materials. We're working very closely with our suppliers, making sure that they deliver on time. Those two together, in combination with our portfolio optimization, we're working very hard on harmonizing labels, on making sure that we had some materials for which at one point we had 20 different sizes.
Yeah, we don't need 20 different sizes only in Europe for one specific material. We need to have the ones that the customer really demands from us and that the customer needs. We are reducing the number of different sizes, we are harmonizing labels, and we're getting better in our end-to-end planning. That will, in combination with real rigor and discipline, we believe that with that we can get to the targets. Thank you.
Thank you. Now, on brands and innovation, Rafa, please. There's a question that states that Fagron Academy is no longer mentioned as an enabler. Remember the house? We are asking why, why we have removed it and if we are still holding it, what is the cost of Fagron Academy and the return of it?
Yeah, that's a very good question. Thanks, Ignacio. What we have explained during the specializer and this section today is that the Fagron Academy platform, which in fact was a formulary with joint effort of many colleagues globally and sales team together with the medical representative team visiting doctors. We have professionalized under the leadership of Savas. We created three platforms. What we said, the studies we have done in the last three years, more than 1,000 studies, 130 have been published, right? Eighty submitted for monographs. That's super interesting. The second, we have worked on the video platform. You have had the opportunity to see in the booth there 500 hours of content just to start. We will upgrade this one.
The third one, of course, is the formulary as such, more than 10,000 formulas with how to compound, stability, how to prescribe, therapeutical application, right? Now it's up to the sales forces of each region/country to deploy these tools and to convince prescribers to prescribe our solutions, right? A gynecologist, if you want to prescribe the HRT, you want to make a personalized progesterone script, right? You need to have blood tests, genetic tests. Remember the panel pump, use the Pentavan because you have this assurance, right? That's one channel. Secondly, what we are also creating, Brazil is super strong, is also a platform to go to medical seminars, to medical congresses, to also create our own roadshows with this community. What really works is when a doctor talks to another doctor.
The key opinion leaders, the key opinion makers that collaborate with us on the studies do also explain to other colleagues, "I have used the progesterone and the Pentavan. The reaction I have had has been superior." This creates a snowball effect with a number of scripts. The product works, patient returns, patient's happy. Doctor says, "Okay, I have now a personalized approach with my patient. I want to do it because I want to have retention." It is a snowball effect that we want to create globally.
Thank you, Rafa.
Thank you.
Thank you. More questions from you guys? Yes, please.
Hi. You have made an acquisition on the packaging side, which could be seen as an upstream integration. Do you have plans to do that, to do more of that upstream integration? If not, why not?
Sure. Thanks for the very good question. What we like to do, that we have this level of understanding also with the board, is that when we enter in a new product category, in this case, as you said, making packaging, we want to first learn something new for us. It's not a big acquisition, so we can play, between brackets, around. We can learn. We have the, how do you say, the sickness, the child sickness, right? It's being set. When we have a good model, we will scale it up, right? This we have done with other activities. I remember many, many, many years ago, right? At that time that we were acquiring repackagers, right? It was at the beginning somehow difficult. Now it seems easy for all of us. At that time, it was really difficult, right?
Because it's new, it's repackaging. We only had here in Anápolis. And we were growing with that. Now we know what we do. We went to manufacturing, right? We acquired Tanda in the Czech Republic, the first time that we're manufacturing a cream, a gel, a pill, right? It was the first time for us. Now we know what to do, right? Now we scale it up, right? We have seen today specialization and deal with the brands. It's the same with packaging. Packaging is something that the compounding pharmacy uses. We want to be active in this product category, of course, not only in Brazil, but worldwide. First, we want to learn and then deploy this knowledge across the globe.
Thank you.
Thank you.
Thank you. We have more questions online, but I want to give you the opportunity as you have been here with us.
Okay. I believe it was the last Capital Markets Day you mentioned a $300 million run rate revenue in 2027 for FSS. I'm wondering if that number is still something you're expecting.
Sure. Yes. You can complement if you want on this one. What we tried to bring to the audience at that time is the second one of CapEx project. The first one was Tampa, right? For the reasons that you have heard today. We had, of course, Wichita. We had the $125 million target. If you remember at that time, we were not there, right? So $125 million. We said, "Okay, this factory has a capacity of around $175 million-$200 million." The current Wichita facility, we call it E1 because it is in the east part of the city. We call it E1, right? When we went to $125 million, we see the prospects, the market out of the $5.7 billion that Andy was referring to, $3 billion is hospital compounding. Out of the $3 billion, a bit more than 50% already.
At that time was less, if you remember, has been outsourced. We believe that the outsourcing trend will continue. This means that the E1 facility will be filled shortly, right? Therefore, we want to bring a new capacity online. Together at that time, when we were making the feasibility study and we decided with the board, "Okay, we go for the investment," it was the $150 million-$175 million. Now it became a bit more because of the expansion that we did in E1, right? Together with the new revenue that we'll generate from E2, which expansion we call it E2 because it's in the east side across the road, 150 meters. When you bring it together, it will be $300 million as from 2027, as Karin said during her part on the CapEx. We believe that we can fill that quickly. It will be a plan totally dedicated for IV bag, automated labeling, vision inspection. We believe we will get there, right, Andy? Therefore, the $300 million as from 2027, we need to fill the facility as well, right? That will take you want to comment here as well? No, I think that's fine. Yeah.
If you look at the growth trajectory of the last few years in the business, we're on that path now. Like Rafa said, we need to ensure the way in which we grow. When we introduced IV bags, it taught us a lot about the space constraints that we need in the business and how to introduce automation is quite complex for our type of business. Getting to that number for us, it's essential that we nail some of these projects that we talked about for the midterm, but directionally, we're on that path.
Yeah. Sorry, but you would exit the year at that revenue run rate or you would achieve that revenue for 2027?
Sure. Depends on how quickly we can fill in the factory, right? We believe with a brownfield is easier than with an acquisition for the reasons that we explained today. The capacity that we announced was $39 million investment with $200 million potential. Of course, we want to have it filled in day one, not even in year one, in day one, right? It's not a linear pathway, but we believe that we can get it filled up quite quickly, three to five years. However, I say not three to five years, however, it's not a target, it's not a specific guidance as it happened at the 125, right? Because we have seen that, of course, there is progress along the way. However, we believe that we can bring it, yes, in this period of time. But please, I repeat myself, right? It's not a clear target or guidance that Fagron in 2027, three and two in 2032, will have $300 million out of the Wichita sites combined, right? That's we're sharing with you our thoughts.
Thank you. Coming back online and on capital allocation and specifically on CapEx. We have talked about one-off CapEx you explained before, Karin. Now, we have been asked about the final cash flow conversion. We have been asked about how to bridge the added capacity that we have disclosed associated to the different projects.
Yeah. Maybe to start with the CapEx, of course, if we look at the cash conversion targets that we were aiming for, it is excluding the one-offs. We explicitly announced our one-off investments, which are two, which are spread over two years, depending a bit on invoice and timing of that and payment of that. In 2025 and 2026, we have the two investments that will have an impact on our cash flow. It will bring our CapEx from 3.5%, which is maintenance, to around 5%, depending a bit on the timing. So between 5-6% on the year yet to take. Overall, it will have an impact on our cash conversion. I do think that the elements that are really strong of Fagron is our cash conversion. If we look, for instance, last year, we had decided to bring factoring down that had an impact of $20 million. Still, our cash conversion, if you take that into consideration and the one-off CapEx, is still very strong. We had a free cash flow of around $60 million last year, including a $20 million reduction of factoring, including one-off CapEx. I think the cash conversion will, of course, be impacted by those one-off CapEx. However, the strong elements of our business model remain, and we want to benefit, right, from, as we said, the opportunities in the market and the attractive returns we see on those investments that we decide to do.
Thank you. Very clear. About the added capacity, we can bridge by projects. Vera or Karin?
Yeah, I think it's, of course, the new facility. That's, I think, the biggest one, right? The $200 million. We have the facility in Tampa, which will bring additional capacity. We have the facility in the Netherlands, which will bring additional capacity, around $50 million. The rest is the new facility we're building or going to build probably in Vegas. That's how you bridge it.
Sure. Great. Thank you very much. Also on capital allocation, there's another question. Not about CapEx, but about it states that our targeted capital structure allows us for roughly $300 million of capital to be deployed based on the 2025 consensus EBITDA forecast and leverage forecast. Okay? Let's take $300 million. What gives us the confidence that we can deploy such an amount of money and how would we see the split between M&A, growth, CapEx, and shareholding returns. Specifically, if the Purifarma deal finally is not cleared, if we would consider spending money on a share buyback.
Okay. Good question. Let's start with our first focus, organic growth. Capital allocation's first focus is organic growth. Investments we've done is, again, the $39 million and the $50 million we announced. That's our first priority for capital allocation. The second one is M&A. As said, we have a disciplined approach. We didn't put a target on that because we don't want to be forced into certain deals. We want to make a good return on the deals. We have a long-term vision on M&A. Secondly, overall, we have room to do M&A, but it depends a bit on the year and the time when we are going to do it and also valuations. Rest of that will be deployed to dividends. That is what we historically did, and that's also what in the future we'll do. We have sufficient room if you look at our balance sheets. I think we are, there is sufficient liquidity and also sufficient headroom if you look at our leverage to do additional acquisitions. To say that we are fully going to allocate such a huge amount to M&A depends a bit on the deals that we have, the leverage that we have, and also the insights that we have in what is going to happen in a very uncertain environment, right? That is a bit how we see our capital allocation strategy.
Thank you. Very clear, very clear. Any question from the in-person audience? Yes, please, Thomas.
Yes, if I can add another question. I just wanted to check in with regards to everything that's happening with the FDA. There is a lot of turmoil on that side and departures and some layoffs as well. From your perspective, do you see any impacts on that with regards to your discussions and maybe also in terms of potential scenarios going forward? Is there a scenario where, for example, it might take several years before they come back and in the meantime, that warning letter just stays open or it will not get closed at all? Would that have a business impact or is that something that happens quite frequently?
Yes. I'll take this in a couple of parts. Number one, the new FDA is still taking shape. I mean, Dr. McCarrey was just confirmed a few weeks ago. On the positive side, Dr. McCarrey sat on a board of a company that owned a large compounding pharmacy. Dr. McCarrey has spoken to compounding positively. That is probably not the history that we have seen with most FDA commissioners. That is on the positive side. On the potentially negative side, because this is still a developing area, would be headcount reductions at FDA and really overall at the Department of Health and Human Services, which is the parent entity to FDA and DEA and some others. That is where we tail into your second question, and that is, how long is it going to take to get those guys back into your facility?
It's impossible to know right now. I do not believe it will be years with NS. Now, whether that happens in 2025, it is certainly not something that I would ever be comfortable going to Vegas and putting chips in that pot. It's simply, given the turmoil within the agency, the fact that there are multiple 503B s that have never been inspected, frankly, given the corrective actions that we've shown, I believe our risk level relative to other players in the market is falling. FDA inspects both on their own capacity and on the risk level associated with 503B s relative to others. When they'll come back, it is impossible to say. I don't even want to guess, but I doubt it will be 2025.
Business impact, as long as we do what we tell FDA that we are going to do, and that is to get through our corrective action plan through which we're already 90% there, and we should be done with all corrective actions, May, I think was the target date that we had placed, and we are currently hitting those goals, there will be no business impact. We're very confident in what the quality team has done with the support of the operations team, of course. I do not see any business impact whether the letter stays open or not. Certainly, from that perspective, we're very confident. Thanks, Hig.
To go on the same subject, I think in the call in December, you said that everybody had or that all your peers had received such a warning letter. Now, given that you have received a letter to say that you're sort of out of trouble, do you know whether your peers have received similar letters or were you actually the first one to receive that?
We were actually the last of the tier one facilities to receive a warning letter. I'm not going to name any other competitors, but these are all very public in information. FDA has been very active, very active in the space overall. I believe they've been more active with what we've easily called the tier one operators, the operators with the largest customer bases, with the largest volume of dispensed products, with the largest revenues. In my opinion, my personal opinion, that is FDA's attempt to mature that area of the industry because your tier one operators, as a percentage of the overall space, take a very large percentage.
There are a lot of smaller players, niche players that do small things, but the tier ones take a majority of the space, and thus the FDA, in my opinion, has been more aggressive in pushing the bar higher for those players. We were the last. What will happen in the future? Obviously, every 503B who has received a warning letter is going through the same process that we are. That is, FDA stated its concerns, you enter into corrective actions, you tell FDA what you're doing, and you hope for the letter that we received a week ago. I don't know of anyone else who received that letter, to be honest with you. To that extent, I'm very comfortable where we are. From an industry perspective, that's just going to be the name of the game for a while, is setting the bar higher. We welcome it. If anything, we invite it because we believe it will force more consolidation, and we're in a good position there.
Thank you. About quality, again, but on the cost side of quality. We have been addressed that quality and regulatory costs have been disclosed at around 12%-14%. If we can elaborate on how much of these costs are fixed versus variable and how much we can scale of this cost as we grow organically or via M&A.
Yeah. If you look at the absolute amount, it's between $44 million and $50 million. A large part is related to testing, external testing. We optimize that. That will go down at external testing. That is basically driven by the test you do in your products. You send them to the lab. They come in. You pay for that. We did a big investment in Wichita last year on our own internalization of our lab activities. That part is going down because we will do our own testing. Of course, the more products we do, the more testing we have. That will remain. If you look at the quality people, part of it is linked to the volumes we are doing, but part of it is also fixed, right? The overhead part is fixed. On the long term, we do believe that the 12%-14% will remain at that percentage as we further optimize. Despite the fact that quality is becoming more and more important and we want to invest, we're also, as Vera said in her presentation, optimizing it by looking at the deviations we have. First time right, for instance, is a good example where we try to optimize that cost structure in combination with internalizing our lab activities. It will reduce our risk internalizing our lab activities. We're not exposed to external labs anymore. It also brings our cost down.
Great. Switching to tariffs, the hot topic of the moment. What are our underlying assumptions that we have made in terms of tariffs for the guidance? Secondly, are potential tariffs a threat or an opportunity? Interesting question.
I guess maybe Andy can add in to that.
I mean, to start, it's not included in the guidance. We believe that, as said today many times, it's too early to quantify. We don't expect major impact. We're well positioned to increase prices, but it's not included in our guidance today. If we have more clarity on how it plays out in the world, we will, of course, if needed, adjust accordingly. Based on our initial analysis, there will be no big impact on our business. However, that said, it remains very uncertain, right? We want to keep that.
About being a threat or an opportunity for the industry.
Maybe that's a good one, Andy, on your to answer.
For us, it's hard to explain without assumptions at this point. I would just add, though, that any situation as this, such as this tariff policy change with the right perspective, can be seen as an opportunity for us. We're in business to serve our customers. One of our values of our company is our customer is number one. We will watch this carefully. We'll do what's best for our customers and for our business. I think it will require a certain perspective going through this to ensure that it's navigated correctly. Thank you.
Any other question from the audience? Please.
Thank you. I've got two questions. One is, as far as that tariff is concerned, if tariffs were introduced, would it change your competitive position in the US? I.e., would it affect everybody in the same way or would it change your competitiveness or your competitive position? The second question is for you, Karin. You've set an upper limit for leverage. If you believe the numbers you hope you're going to generate in the coming years, is there an ondergrens before you would consider taking more decisive action on share buybacks or extraordinary dividends? Grens in English is frontier, right?
Lower limit. Lower limit. Right. Good. Just to comment on the tariffs one, Patrick, on the dedicated slide that Andy explained today, what we try to bring here to the audience is that, first of all, it's uncertain. That has been said. Second, what we also experienced in the past when this phenomenon happened at a lower level, of course, is that we were well positioned contractually, right? Remember that we have a contractual obligation with our customers. We also have transactional business, more in the raw materials. In the contractual obligation, we would be fine, right? Transactionally, it's also a market price, as we see in other markets, like the Brazilian one is a good example. Here we could also transact with our customers.
As Andy also explained today, we have a very good relationship with our customers, and our customers acknowledge the situation that we are in, and they also understand that there must be a price impact, if any. Having said that, we have a beautiful moat, which is scale and agility. I tried to look at Philipp from Active Ownership because always in our discussions, right, and constant interactions, we work about the moat. We see scale as a unique advantage of Fagron, right? What we experience now, for example, hormones is a huge product category for us globally, right? Compounding is key in this therapeutical category. We have, for example, as an example, progesterone, 16 metric tons as a yearly volume. Think that in each prescription, you are doing less, well, milligrams, right? So really few.
There is a lot of prescriptions that we are preparing globally. This volume, no one else in the industry has, right? We have been talking today about great competitors. We have heard names. We have also seen the peers on the screen. We can assure you because Vera and I, three times a year, we go to our China and India trips. We stay there for 20 days, really. In China, we get very thin, and in India, we get a bit bigger because of the food that we eat. What we see is that when you talk about 16 metric tons, they treat you as a king. Sorry for saying that, but that is how we are being treated. When you tell them, "Hey, guys," because we have also a good relationship with them, "This is happening.
Are you going to support?" And they tend to say, "Yes, for sure. We also understand. We're also customers of them," right? This means that we are not going to benefit out of this. We are going also to support our customers because they also have customers. If we would get any reduction, the reduction would also be for our customers, right? We believe that no one else in the industry has this kind of volumes. This is how we clearly see that. Again, in business, things happen, right? We saw today quality, regulation, and competition in that slide. We could be agile to offset it, right? This is also happening to us. We are agile, and we believe also that we can offset this. Thank you for the question.
Thank you, Patrick. Is there a follow-up?
Yeah. That was just for me to follow up, right, Patrick? Thank you very much. It's a nice question because we're at the lowest that we've ever been at 1.4 times as long as I'm here. We don't have a hard under limit determined with the board. We do believe that we are at the low end of where we want to be. We also see that there are opportunities in the market. From a capital allocation perspective, we want to focus on that. Of course, on the longer term, if they don't, for whatever reasons are there, we need to adjust our capital allocation policy. We do that at that time if we need to. However, we see enough opportunities to grow organically on the one side, but also doing M&A if we see our pipeline.
We acknowledge the fact that we are at the low end currently. Of course, it's good to have a strong balance sheet. We want to invest and invest in future growth. That's our focus. No, there's no hard limit. If needed, of course, together with the board, we will determine what to do at that point.
Thank you. Getting back to the first right first time concept that we touched before, now it is about the major drivers for mistakes, human error, customer ordering, and the technology. What is the technology to drive improvement here? AI, for instance. How much do these mistakes cost us in terms of margins? How can, of course, get this to improve? It is a bit about the underlying of what is behind. Thank you.
Right. I think it's a combination. Part of the right first time has to do with the design of your documentation. You need to make sure that you have the design of your documentation correct. You need to have the discipline to follow the full process. What you see in companies that grow fast, and of course, we've seen major growth in Wichita over recent years, you hire a lot of new people. That means you need to train a lot of people. That means that in the start, you have a few more mistakes. It doesn't mean that any product that is not perfect is going to the market. You have a very clear release process where those things are checked and basically where corrections are made. It means you have double work in going back and correcting the documentation. The cost of that, I find it very difficult to quantify. Yeah, it's a good question, but today I don't have an answer to that. We'll think about that one, how we can better quantify it.
Excellent.
Thank you, Vera.
Excellent. Any other questions from the audience here present today? Please.
The Wichita warning letter, did it have any operational influence last year?
Yeah, it didn't.
Okay. My second question is, talking about brands, are there always brands that are owned by the company?
There are some brands where we own the IP, as we said today, for sure. Also the formulation. Remember the base for startup that we use also for neonates, right? It is a family of products for suspensions, right? Solutions. There are five items. One is for neonates. For example, in this one, we own the formulation. It is ours. It is our development. It is protected. It is 100%. It is the only product in the market, right? With the studies. We do own them, right? On the other product category that we explained today on the phytoactives, for example, for the tricho, the alopecia range of products, there are seven items there. Here we also have submitted two patents there. They are ours for already many years. No one really can have these kind of items in the market. It is also true. It's a very good question because some customers or customers, some providers, right? Competitors have tried to copy such a range because it's quite successful. You have seen the numbers, but they don't have the ingredient that really makes it work. It's a functional ingredient, right? So we try to protect all these developments that we do, for sure.
Thank you.
Thank you.
Thank you, Carlo. On the EMEA region, Costas, how does the growth outlook of compounding depend on sterile versus non-sterile? Do we expect a decline in sterile considering alternative treatment options, in particular cytostatic?
Yeah. Okay. For sure, we see an evolution like on the sterile business, but still actually the non-sterile business is something that is present in the market for many years. As explained during my presentation, there is this kind of trend that is also evidence-based that we are switching more and more to ready-to-administer medications because it's a necessity. We do expect that this part of business will continue increasing over the coming years because it would be like a request from the hospitals. Does that answer the question or it's like something that I'm missing?
No, I think so, yeah.
Okay.
Thank you very much. Thank you very much for joining us today, especially for those that have been here with us in person. For any other questions, happy to touch base at your convenience and to follow up offline. Thank you very much. Thank you.