Good day, and thank you for standing by. Welcome to the Vistin Pharma quarterly report Q2 2022 conference call. At this time, all participants are in the listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you will need to press star one and one on your telephone. You will then hear an automated message advising your hand is raised. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link anytime during the conference. Please be advised that today's conference is being recorded. I would now like to hand the conference over to our speaker today, Alexander Karlsen. Please go ahead.
Thank you, and good morning, everyone. Welcome to Vistin Pharma's second quarter and first half presentation. Today's presenters will be myself, Alexander Karlsen, the CFO, and with me, I have Magnus Tolleshaug, the CCO and the interim CEO. I will now hand over to you, Magnus.
Thank you, Alexander. I will go through the highlights of the second quarter and the year to date 2022 results. The second quarter ended with a revenue of NOK 69 million versus NOK 67 million in Q2 2021, which represents a 3% increase. Due to the Metformin Expansion Project ramp-up activities, there has been limitations on volume available for sale in the quarter. The year to date 2022 revenue ended at NOK 102 million compared to NOK 138 million year to date last year. The EBITDA in the quarter ended at NOK 4.7 million versus NOK 13.4 million in Q2 2021.
The EBITDA was unfavorably affected by limited sales volume in the quarter, start-up costs for the new line, FX exchange rates, and the record high electricity prices in the quarter. There has been start-up costs driven by onboarding of new operators and the quality control FTEs not fully utilized yet and semi-variable overhead costs. The year to date 2022 EBITDA ended at - 13.5 million NOK versus a + 28.8 million NOK year to date 2021. The volume output is gradually increasing as new line two ramps up. The existing line 1 has been producing according to plan in the quarter. However, at a slightly reduced capacity due to a normal maintenance stop and also optimization of production with two lines.
The new line two is producing at reduced capacity as part of the volume ramp-up phase, and capacity is expected to continue to ramp up gradually during Q3 and Q4 and reach an annual capacity rate of more than 5,500 metric tons by the end of 2022. An annual capacity of approximately 7,000 metric tons is expected to be reached during 2023. Financial results is expected to continue to improve for next quarters as we get more volumes available for sale. Vistin Pharma, we are a pure play Metformin company with a bright outlook, as we like to say. Diabetes is really one of the largest health emergencies in the twenty-first century. More than five million people unfortunately die of diabetes every year. Metformin is the gold standard treatment of type 2 diabetes.
Therefore, we like to say that we see a bright outlook for Vistin Pharma, a leading global producer of premium high quality Metformin to treat this illness. The global market demand for Metformin is still growing and is expected to grow on a compound annual growth rate, CAGR, of around 5%-6% at an annual basis. Our global market share will be approximately 15% with the new capacity fully utilized. Just shortly about Metformin. Metformin is used as the first-line treatment for type 2 diabetes. It's used to treat lower and balance the blood sugar levels. It is today the most cost-efficient treatment with very limited side effects and a very long-term safety profile.
It typically comes in a tablet form, either as plain tablets or combination tablets, where plain tablet is about 80% of the volume or 75% of the volume. It can be combinations with Metformin and other types of APIs as second- and third-line treatments, either DPP-4 inhibitors, SGLT-2 inhibitors, or other ways of combining it. Vistin Pharma, we are selling our API to both product segments. Diabetes is really a global emergency. These are data from the International Diabetes Federation, and these are projections. If the growth in the world continues like today, it is expected that around 578 million people will be suffering from diabetes in the year 2030.
Maybe up to 700 million people in the world will be suffering from diabetes in 2045. That's approximately a 50% increase from today. Out of all patients suffering from diabetes, about 90% are diabetes type two and 10% is type one. Within pharma, we do sell. We have a really global coverage. We sell all over the world, all the way from Japan in the east to U.S. and Latin America in the west. We have a sales organization, so we have direct sales, so we sell via distributors and agents.
We also have a large portion of our customers, which are large international pharmaceutical companies based in Europe with manufacturing in Europe, who are then transforming our API, combining it with excipients, making the finished dosage form and then selling the product at least in more than a hundred countries in the world. With that, I think I will go to the financial review, and I will hand over back to our CFO, Alexander Karlsen.
Thank you, Magnus. Looking at the graphs for the quarterly and annual sales volume. As Magnus touched on in the highlights, in the second quarter, there were still limitations in volume for sale. However, we expect outputs and sales volume to increase going forward as we continue the ramp up. Looking at the revenue, ended at around NOK 69 million compared to close to NOK 67 million same quarter last year, increase of 3%, even with 11% decrease in sales volume, reflecting the increased prices we have now. Sales prices in the second quarter reflect the current raw materials and electricity prices. However, as we saw that raw material costs started to stabilize in end 2021 and the first quarter 2022, the Ukraine situation has brought back volatility and further increased raw materials.
Now we also see pretty high electricity prices that we'll come back to a bit later. However, to be on top of this, we have quarterly dialogue with our main customers, to negotiate sales prices based on the volatility we see in the markets. We also have a significant portion of safety stock of the most important raw materials, to secure the ramp up of the volumes. Going more to the operational result and the EBITDA, it was also in this quarter affected by start-up cost and onboarding. We're not still fully utilizing the new heads, but training and get them up to speed. We expect, however, this to turn around as we ramp up, and they are not expected to increase the manning in the second half, even with the volume increase.
For the semi-variable overhead costs like supply, tools and patterns, purchase services and part electricity, we do not expect that to increase linearly with production volume. As for many other production companies we hear about, electricity prices is a concern. Our electricity cost is up by around 300% in the second quarter 2022 compared to the same quarter last year. We have ongoing initiatives in the plant to reduce the power consumption. Number one priority now is the MEP volume, and the second priority is the initiatives to reduce the power consumption. We come back to that with some more concrete information in the coming quarters. Having a look at the income statement, I think we touched on both the revenue and EBITDA.
The earnings before taxes ended at around NOK 310 ,000 compared to around NOK 10.3 million in the same quarter last year. Depreciation ended at NOK 2.6 million in the quarter compared to NOK 3.2 million in the second quarter last year. We had some assets completing depreciation at end of 2021. That's why it's a bit low now. However, it's important to have in mind that as we start capitalization of MEP in the third quarter, depreciation will increase going forward. Net finance ended at minus NOK 1.7 million, compared to a slightly positive figure of NOK 136 ,000 in Q2 last year, bringing net profit for the period at NOK 242 ,000. Moving on to the balance sheet.
We continue to see an increase in the fixed assets driven by MEP. It's also a small increase in the deferred tax assets, from second quarter last year, driven by the negative results, so far this year, bringing total non-current asset to close to NOK 226.5 million. Going down to the current assets, it's quite a big increase in the inventory. This is mainly driven by raw materials. As you mentioned, we have a significant portion of raw materials to secure the ramp up. We also have a look at the other receivable, that's also quite a big increase, and that's driven by raw materials paid and received locally, but not still in the plant. Adding those two together, they are quite high working capital requirements.
Probably a bit too much raw material as of today, so we'll bleed out some of that during Q3 and Q4. We will still continue to keep a significantly safety stock, but at a slightly lower level that we had at end of Q2. This brings total assets to close to NOK 371 million, compared to around NOK 320 million say at end of Q2 last year. Having a look at the equity and the liability side of the balance sheet, we have equity of around NOK 261 million, which is around 70% equity ratio. Our non-current liabilities, pretty stable, close to NOK 60 million. While we see a increase in current liabilities, again, linked to the volume ramp up and the working capital as we mentioned. Trade payables higher as we purchase more raw materials.
We also have now the short-term debt, as we have established a revolving credit facility to handle the planned liquidity effects from the ongoing expansion and the final MEP payments plus additional CapEx in the plant, for example, a new finished goods storage that we complete now in Q3. That brings the total equity and liabilities to close to NOK 371 million compared to around NOK 320 million for the same period last year. I think that was the highlights of the financials, Magnus. I'll then hand the word back to you.
Yeah. Thank you, Alexander. I will give a brief update on the Metformin expansion project. From the operational point, as mentioned, the existing line one produced according to plan in the quarter, however, at a slightly reduced capacity due to normal maintenance stop and optimization of producing with the two lines. Line two is producing at reduced capacity as part of the volume ramp-up phase. Also as mentioned, the capacity expected to ramp up gradually during Q3 and Q4 this year and reach an annual capacity rate of more than 5,500 metric tons by the end of 2022. That the annual capacity of approximately 7,000 metric tons is expected to be reached during 2023.
The first commercial batch from the new line two was shipped out of our plant in the second quarter as planned. The current organization is capable of handling the expected 2022 volumes without adding additional FTEs. From a financial point of view, the increased working capital, also as Alexander talked about, requirement in the second quarter is driven by raw material stock and time from production start of line two to payment from customers. The cash flow is expected to improve from the fourth quarter this year. Raw material inventory will gradually be decreased during the second half as we see more stable supply from China and India. However, a significant safety stock will still be kept locally to support the ramp-up plan.
As of today, approximately 80% of the Metformin and 50% of other plant CapEx in 2022 is paid as of end of June. The financial result is expected to continue to improve for the next quarters as we get more volumes available for sale. To sum up, Metformin market is expected to continue to grow by 5%-6% annually compound annual growth rate. Diabetes is one of the largest health crisis of the 21st century. Metformin is expected to maintain its position as the gold standard treatment for type 2 diabetes in the foreseeable future. We see an attractive growth potential to be realized when the additional manufacturing capacity is available.
The COVID-19 and Ukraine situation has been an eye-opener to both authorities and the industry, leading to large pharma looking for lower risk supply chains and also short travel medicines. Vistin Pharma is strategically well-positioned as many European clients prefer high quality supplies with short travel distances these days also. The expansion project to increase the capacity to ±7,000 metric tons is progressing. The first commercial batch and second production line was shipped out from our plant in second quarter as planned. That's something we're very proud of. I think with that, we are done with second quarter presentation, and we open up for questions.
Thank you. As a reminder, to ask a question, you will need to press star one and one on your telephone and wait for your name to be announced. If you wish to ask a question via the webcast, please use the Q&A box available on the webcast link at any time. Once again, if you'd like to ask a question via the telephone, please press star one and one. I will pass the call back to you, sir, as there are currently no phone questions.
Thank you. Over this year, quite a few questions written through the webcast. I think, to summarize, a few of them as there are general questions about costs and sales prices and negotiations with customers. Maybe you can comment a bit on that, Magnus.
Yes. The question here is whether we're able to bring some of our costs on the electricity and other costs on to our customers. We are, as Alexander mentioned, we do have quarterly price negotiations with our main customers, and both freight costs, raw material, and electricity is part of those negotiations.
There are also a question about freight or how we see the freight and raw material costs going forward.
Yeah. I can take that. We see. In the past, the raw material prices and freight costs has, of course, rise very high. Going forward, at the moment, we do see that the raw material prices at the moment is stable. We also see that the freight cost is slightly declining. That's, yeah, that's the situation.
Yeah.
At the moment.
I think that would be the main concern we see now is the electricity prices. For raw materials and freight is more stable. There are also some questions here regarding securing a customer for the new volume coming and contract, et cetera. Maybe you can comment also on the business development activities on this, about how you're progressing it.
Yeah.
How things are looking.
Well, we have a sales department where we're working actively with both, of course, ensuring the demand to our existing customers who have a growing demand, but also looking actively to get new customers on board to completely fill the manufacturing plant, of course, of the 7,000 metric tons as we go forward. We're actively engaging into that activities.
Next question is about our ASP selling prices. I can comment a bit on that. I feel that our current prices, as mentioned, do reflect the cost level we're seeing around in the market. I think for us now it's more about getting the MEP going up and running and getting the leverage there. And that will obviously benefit the financials. There is also a press question here about the production volumes in 2022. We have communicated something around that previously. Maybe you wanna say something there, Magnus.
Yeah. We did communicate that we previously set ourselves an ambitious goal to produce 5,000 tons in 2022, but we'll probably be closer to 4,000 tons this year. There's also a question here whether we are able to, or whether we have secured, sales of the volume that we will produce in the second half of 2022. I can say that all the volumes that we will produce in 2022 will be sold.
There are also a complete question on the operational expenses, and the increase there, over the last years, and Q1. What I can say is that the increase in operational expenses in the second quarter is all driven by electricity. We actually see some good productivity and cost decreases on water, waste, et cetera. Unfortunately, the electricity cost is going another way, increasing the operational cost in total. There are also a question here on the gross margin, and what to expect going. I think that gross margin is dependent on several factors. Obviously, it is the sale prices and the raw material cost, but it's also affected by the FX as we sell most of our Metformin in euros and purchase our raw materials in U.S. dollars.
So far in 2022, this has kind of spread and been unfavorable to us with the U.S. dollar strengthening versus the euro. The percentage gross margin is difficult to predict, but we would expect to keep that current level and maybe slightly better going forward. There is also a question about manning going forward. As we said in the presentation, we do not expect to add any new FTEs in 2022. As previously communicated, we have said that going from around 3,500 ton to 7,000 ton production volume will require around 15 new FTEs, mainly operators and quality control people. We think that number is probably less.
To produce 7,000 tons, we think we probably need in the range of ±12 heads compared to where we were at the Q2 2021. There's a question about the EBITDA for next quarters, but we will not guide concrete numbers. I think we will keep to what we said in presentation. As we get more product out of the plant, we will see sales volume increase, and that will benefit the financials going forward. It's obviously also, as we just mentioned, with adding few FTEs, with doubling the volume and also the mentioned semi-variable cost will not increase linearly with the production volume. There are leverage going forward as we ramp up. There's also some cost on electricity. I think we communicated before that we use between 10 million-15 million kWh annually.
I think then it's more up to you guys to calculate. Again, we have initiatives ongoing, so the plan is to take down consumption. That will take some time. It's not a quick fix. I think now we have touched on all the questions, Magnus. We will say thank you for now.
Mm-hmm.
Have a nice day. That's all from us.
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.