Good day, and thank you for standing by. Welcome to the Vistin Pharma quarterly report, Q2 2023 conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this 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. To withdraw your question, please Press Star one and one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kjell-Erik Nordby, Chief Executive Officer. Please go ahead.
Thank you very much, welcome to the second quarter presentation in Vistin Pharma. As usual, we will start with the highlights of the quarter. We are pleased to inform you that Vistin is continuing doing well in 2023. The revenue in the second quarter ended at NOK 107 million, compared to NOK 69 million in the second quarter last year. Reason for this significant increase in revenue is mainly driven from the increased volume from the new production line that, you know, that we invested in and opened in 2022, compared to the same quarter last year, which was in the beginning of the operation of the new line.
Year-to-date, the revenue was NOK 208 million, compared to NOK 102 million year-to-date last year, which is more than a 100% increase. EBITDA ended at NOK 20 million, compared to NOK 5 million in the last quarter. This significant increase in EBITDA is mainly affected by, first of all, the increased sales volume. We had much more volume available for sales. Scale economy benefits. In 2022, we hired all the employees that was necessary to run the new manufacturing line. In 2023, we haven't had the need to add additional manpower, for example, which of course gives a very positive effect when the manufacturing volume and sales volume increases. We also enjoyed competitive electricity prices.
Last year was a nightmare to, to Vistin and all other manufacturers in Norway due to the extremely high energy prices. In December last year, we entered into a 10-year supply agreement with Statkraft that gave us competitive prices on electricity, which we are now enjoying. The Norwegian kroner has been very weak, as all of you know, in 2023. We mainly sell in Euro and we produce in, in NOK, and that has given us a benefit. This is partly offset by stronger U.S. dollar versus NOK, because the raw materials are bought in dollar. Year-to-date, the EBITDA ended at NOK 34 million by Q2 compared to negative NOK 13 million the same quarter last year.
The net profit has is negatively affected with NOK 3 million in the quarter, and that is by fair value of future FX cash flow hedging contracts. However, that has no cash effect in the quarter. We are also happy with a significant improved cash flow. At the end of 2022, we had a net debt of NOK 44 million. That has been turned to a positive net cash flow of NOK 3 million by the end of June. Vistin has a focus, very much focus on local and global emissions, and we have several programs in place to consume responsibility.
This is both because as a main manufacturer in the Kragerø Municipality, we are very responsible at taking care of the environment. It's also as we see it, a competitive advantage to focus on this, and it gives us a competitive edge over, for example, Asian manufacturers. We also know that our customers both appreciate and in more and more demand that we are a green company focusing on ESG issues. We have just listed some of the things that we are focusing on, as I've done.
Our, our overall goal is to have zero impact on surrounding environment. We are now doubling the production volume with the, with the aim of not increasing the impact on the environment. We are on track on that. During the last three years, we have invested more than EUR 4 million in sustainable initiatives. For example, we have reduced the emission of solvent to air by 90%. We are reusing more than 90% of all the solvents that we, that we use in the, in the manufacturing process. We are investing approximately EUR 1.5 million in a project to recycle cooling water. That by hopefully will be implemented by year-end and will reduce the consumption by 80%.
This is both a benefit for the municipality, but it also will give us a significant cost benefit going forward. We are in close cooperation with the waste treatment receivers to optimize waste and to turn the waste into raw material. This is a project that will be ongoing for the time to come. We have, since 2017, done biannual effluent surveillance of the Kragerfjord to analyze, to see if there is any trace of Vistin material in the local fjords in Kragerø. In the report that we received last year, it concludes very clearly that there is no trace of any Vistin substances in the local fjords, which is, of course, very, very positive for us and for the people living in Kragerø.
Our target is to reach the United Nations sustainability vision of zero emission when planning for the future. All our initiatives going forward have that in mind. Yes, we go over to the operation review. We are probably the only company in the world that actually live and breathe with metformin. We are a pure-play metformin company with advantages that that gives us, because we can concentrate and focus 100% all over metformin business. Diabetes is one of the largest health emergencies in the 21st century, and metformin is still the gold standard treatment of type two diabetes. We are in a growing market.
The market is expected to grow by 5%-6% annually, we aim to have a global share of that market with approximately 15% when the new capacity is fully utilized. As the Metformin is the first-line treatment for type 2 diabetes, 90% of people suffering from diabetes have type two. The advantage and the benefit with Metformin is that it's a very cost-efficient treatment. The health society can afford to treat patients with Metformin. It has been around since the sixties and has limited side effects compared to the, to all the positive effects that Metformin have. Today, more than 500 million adults in the world are living with diabetes, that represents more than 10% of the world's population.
We are quite proud to say that Vistin today deliver Metformin to type two diabetes patients to more than 50 million of type two diabetes patients every day. We are a significant contributor to treating diabetes two in the world. The total number of diabetes patients, with... I said that the market is expected to grow by 5%-6% annually, and the total, and that is based on the, that the total number of diabetes patients is expected to rise by more than 200 million people by 2045, which is a 46% increase. This is numbers taken from WHO's report. Today, we produce about 10% of the world's demand of Metformin. We have a worldwide sale coverage.
This sales map just illustrates where our customers are located. However, most of our customers are operating in the global market, so that Vistin's Metformin API is probably included in, in Metformin medications spread around the whole globe- the whole world. I think that's that finish the highlights and the operation review. I now give the word to Alexander to go through the financials for the quarter.
Thank you, Kjell-Erik. We'll start to have a look on this historical graph. As you can see, we have a long and successful growth track record, and with the MEP investment, we are on a path to continue this growth. Going to the quarterly figures, having a look at the production and the sales volume, both continue to increase in the second quarter, and it's also expected to continue to increase throughout 2023. It's however important to mention that for the production volume, there will be quarterly variations depending on planned maintenance stop and potential downtime, as we still are in a ramp-up phase. As you can see in the production and sales figures, we have produced more than we have sold for the last quarters.
We have built some finished good inventory, and that is mainly to secure customer service level, that are their expectations, and also to prepare for increased sales volume in the second half of 2023. Having a look at the revenue, which was EUR 170 million-EUR 107 million in the quarter, and as Kjell-Erik mentioned, mainly driven by more volumes available for sale. The revenue is also positive, affected by a stronger Euro versus NOK. If we adjust for the effects, the currency neutral revenue increased by approximately 30% compared to the same quarter last year's. The sales prices is reflecting the current raw material and freight costs. I would add that we have seen a general decrease in, raw material prices, in, Q2, and also some going forward with the purchase we're doing now.
It's likely that there will be some reduction in sales prices. However, our goal is that the reduction will be less than the raw material prices. This may affect the top line going forward, but should be positive for the margin development. Having a look at the gross margin, which came in at 58% in the second quarter, adjusted for currency and mix, the gross margin is approximately 2% better in the second quarter, compared to Q1 2023. For the gross margin in Q2 last year, it's important to mention that that was heavily affected, that we had very limited volumes, so only very high-priced premium volume was sold.
As mentioned, the raw materials is continuing to increase, and much raw material we have in hand for the third quarter, and orders we do for Q4 is at a reduced prices, which should be positive for the gross, gross margin development going forward. Our ambition for the gross margin is above 60% long term. Looking at the EBITDA, came in close to NOK 20 million in the quarter, compared to around NOK 5 million in second quarter 2022. Again, closely affected by more sales volume. The Euro versus NOK are however, partly offset by the strong USD as we purchase raw materials in US dollars. The Q2 last year was, as Kjell-Erik mentioned, heavily affected by limited sales volume and start of cost for the new line, in addition to the very high electricity prices.
It's very pleasant to see that we deliver margin improvements, which is driven by the economies of scale as the MEP volume ramps up. For example, having a quick look at the operational expenses and salary costs in Q2 2023, is almost at the same level as the same quarter last year, giving us the expectations of a good economics of scale. Having a look at the key figures in income statement, we have been through some of the numbers, but having looked at the earnings before taxes, which came in around, what? NOK 9.1 million, we can, for example, see that depreciation has significantly increased compared to the same quarter last year, which has driven that we have completed the MEP investment and started to depreciate that investment.
We also have a net finance income-- sorry, finance expense of around NOK 6.2 million, which is mainly NOK 3 million in realized loss on the FX hedging contracts and NOK 3 million in unrealized cost on also FX hedging contracts. That gives profit for the period of the tax of NOK 7.1 million. However, our tax is not payable as we have other deferred tax assets. Going over to the balance sheet, not any significantly changed, I would say, compared to previous. Total non-current assets at around NOK 246 million. Looking at the current assets, Some comments on the inventory. Previously, we have had more raw materials than finished goods.
This has switched a bit in the second quarter, where we have bled out a significant part of the raw material and have sold less than we have produced. The mix is now more at more finished good and less raw material. However, we expect that to change again in the Q3 and Q4, as we have purchased some additional raw material due to favorable prices. We got some additional volume rebate if we purchase more raw materials, we decided to do that as we see the prices as favorable. That gives total assets of around NOK 383 million as of end June. Having a look at the equity and liabilities. Equity at around NOK 277.6 million, strong balance sheet, 72% equity ratio.
We had a very strong cash flow in the first half of 2023, so we have done, done a full down payment of the credit facility, and as of end June, we have a net cash, cash flow position. If you look at the balance in the other current liabilities, that's mainly raw material in transit, so it's sent from the supplier, but not yet received locally. As mentioned, as we have purchased additional raw materials, which we will deliver and paid in Q3, this will mean that we will have more work, higher working capital requirement in the third quarter. That will affect the cash flow in Q3. I think that was all I want to say with the financial, Kjell-Erik, so I'll give the word back to you.
Okay. It's time for me to kind of sum up the second quarter. Starting with the slide, saying who we are and how we stand is operating in the market. Today, we produce two different Metformin products. We produce the bulk API, and we produce also a D.C., a direct compressible granulate, which is a pre-tablet form. Approximately 80% of our volume are the HCl and 20% D.C.. When we go forward and we are going to fill the capacity completely, we are focusing on both these products, we want to grow both the HCl and the D.C. business.
In April 2020, as mentioned in previous calls, the board decided to invest NOK 100 million to increase the annual capacity up to 7,000 metric tons. That investment is completed. We have used less than the budgeted. The price for the expansion has been less than NOK 100 million, so we're well in line with budget. The installed capacity, where at the end of 2022, was 5,500, running at 6 shift, 24/7. They're still running 6 shift, 24/7, and producing as much as we can. We expect that the capacity increase to close to 7,000 tons by end of 2023 or early 2024.
We position ourselves as a premium producer in a competitive market, so the customer should demand more from us than from low-cost manufacturers. We sell to reputable international pharmaceutical companies or strong regional companies. We have a state-of-the-art, fully automated manufacturing plant in Kragerø. We are approximately 70 employees in Kragerø, produce that are able to produce approximately 7,000 metric tons of material. That means that also that salary levels are not the most critical factor in this pharma, since we have been so focused on automatization.
We are certified by all significant international regulatory to bodies, and our competitiveness, so, is that what we think differentiates us from, from other Metformin manufacturers, is that we are located in, in Europe, so we have delivery time, less than 24 hours to, to most of our customers in, in Europe. That gives us a competitive edge over non-European producers. In addition to that, is the, what I mentioned earlier, our focus on ESG, and and environment, which is something that I think we will see becomes more and more important going forward. We are in a growing market, which is very nice to be in a growing market. Diabetes is unfortunately going to continue to be a very important and serious disease in the twenty-first century.
Metformin is expected to be the, to be the gold standard treatment going forward because it's so cost efficient. It will probably come other medications that, but they will be second or third line treatments and will not be the blockbuster as Metformin is. We see the attractive growth potential to be realized when the capacity is fully available. We are already progressing nicely with the, with the, with the capacity expansion. As mentioned, we are strategically well positioned as many European clients and most of our European customer, and most of our customers are in Europe. They prefer high-quality supplies, reliable supplies, near store production, and not, and also at least the, an attractive ESG profile, which we believe that we are and will continue to strengthen. The expansion project is progressing according to plan.
The ramp-up plan is going nicely, and that is something that we will benefit from going forward. The long-term renewable energy supply agreement with Statkraft, that has improved our competitive position and hopefully going forward, we are not that exposed to fluctuation in energy prices. As Alexander also mentioned, we see a downward trend in both freight and raw material prices. For the remaining part of 2023, they are expected to decrease. Sales prices and volumes for most of the remaining 2023 are secured already. I will finish off by also stating the ambition that the board has communicated earlier, to pay out 50% of net annual profit and dividend.
The size of the dividend will be dependent on the company's financial capability, and of course, the capital requirements for future growth. Thank you very much. That ends the, the second quarter presentation of Vistin, now we leave it up for, 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. To withdraw your question, please press star one and one again.
Okay, there's- we already receive some questions, so we'll start on the top. There's a question if there will be a dividend. The board of directors did receive a proxy to pay out up to NOK 0.75 or NOK 0.75 per share as dividend. The power of attorney is valid until the general meeting next year. We will come back to that and send out a press release if they decide to send or to pay a dividend.
There was, it's a question. It was an article. I was interviewed in Finansavisen some time ago. It was an article about, about Vistin. It says that we, we target NOK 400 million in, in revenue for this year. It's a very approximate figure. I mean, I was asked to do that. We are not giving any guiding about what we expect to be the end revenue target for this year.
As Alexander mentioned, that we have a strong focus on selling whatever we produce, and of course, to sell 6,000-7,000 tons in the future, it will be also a higher percentage of generic volume that will be sold at somewhat lower prices. So the average selling price going forward is expected to be somewhat lower than, of course, that we have in the second quarter last year, where we only sold premium volume.
There was a question here about just gross margin and our long term goal of 60%. I think this is a question about what needs to be premium and how much to be premium, et cetera. I think there's a lot of variables that decides the gross margin is, of course, the sales volume and the mix, meaning premium versus generic, but it's also the FX, the U.S. dollar and Euro, and also the general sales prices in the market, which, again, as I mentioned, is depending on the raw material prices. To be concrete on the question, it's not a defined percentage that of the sales that needs to be premium volume to reach the 60%.
I think we will do what we can on the sales prices, and on the volume, to make sure that we reach the 60%. I think we are on a track to that as of today, as of now. Again, a lot of variables, that affects that, but we will do whatever we can to reach the 60% targets going forward.
We got a question, how many FTEs that we have? By end Q2 2023, we had seventy-
Around 80, I think.
77-78 employees, which is the same number as we had in the second quarter last year.
Yeah. We don't expect to add any FTEs short term. I think we have to see in 2024, for short term, we will have a similar number of FTEs as we have or had in Q2.
A question about the progress in acquiring new customers, new generic customers. We can't say anything about that, except that we want to, and we expect that we will fill the additional capacity by also entering into new supply agreements with new customers. This is an ongoing activity. If and when we sign a contract which is substantial, this will be something that we will inform about. I can't say anything about that because that's either 100% or zero. Of course, we are working on with different project at the moment. Some will hopefully materialize, some will not. That's that's life.
Yeah. Also a question here about the volume, let me say, we expect decreasing freight prices. I, I think it's to be precise there, is that there has been a very steep decline in the freight prices, but there are some lag from the spot prices until that kind of materialize in our P&L. We generally place orders and shipments three, four months before we receive the raw material from the Asian, and we don't then pay the freight before it's shipped and received in our or in Norway. It's not necessarily mean that we think that the spot price will decrease, but as we see, we start to receive material, raw materials, where orders were placed in, in Q, late Q1 and Q2. The cost we actually pay when we receive raw material is, is decreasing.
I think that's, that is the questions that we received. We try to answer them as best they can. Some, some questions cannot be answered in full because it's confidential, and we, we do, do not want to inform about the things that we, we, that maybe happen in the future. Otherwise, I think that completes the second quarter presentation, and thank you for, for listening in.
Yep. Thank you.
This concludes today's Conference Call. Thank you for participating. You may now disconnect.