Earnings Call: H1 2021

Aug 27, 2021

Good afternoon. Welcome to the 2021 half year presentation from Baham, our afternoon session. My name is Daniel Grotzky. I'm the Head of Group Communications at Baham. And it is my pleasure to introduce you to our team today and lead you through the call. With me here today in the studio in Bubendorf, Switzerland are Thomas Meyer, the CEO of Baham and Anna Schachter, the CFO of the Group. And Thomas will kick us off with an overview of the results of the first half year and then Alan would lead us through the highlights of the financial report. Thomas will then add some comments on the outlook and the overall market environment for Baham and then we'll go into Q and A. So without any further ado, it is my pleasure to hand over to Thomas Maier, the CEO of Bachmann. Thank you, Daniel, and welcome everyone to the afternoon session for the half year results 2021 of Bakken. As you can imagine, it's a happy day here in Bubendorf. I've seen many smiley faces and to everyone you talk, you feel proud of the achievements we had in the first half year and it's a well deserved pride. It is a very good result. The result is due to our leading position in a very dynamic market, a market that develops quickly and delivers new medicine for People in Need. The result is also due to our strong commitment to become number 1 in every business venture we are active and of course to the detailed execution we do in our day to day operation and work. And with that, we achieved the results we're going to discuss now in detail and we start with the headline. The headline, of course, is the revenue and we are at 200 39,100,000 and that is 35% more than during the same period last year. What is more is growth is across all business categories and in all geographies. The growth we see is a profitable growth, meaning that the profit numbers, for example, EBIT grows faster than the percentage of the sale. In absolute numbers, we achieved CHF 61,900,000 EBIT. We're not only achieving good results, we're also investing in the future of the company and we're invested in 107 new colleagues across all sites and all continents we are active and we invested over $50,000,000 in new buildings and new infrastructure and equipment. The detailed numbers here, we have Talked about the revenue EBITDA, our profit number is at 75,500,000, which is 31.6 percentage of revenue. EBIT is at 61,900,000 and that's 25.9 percentage points. Net income is at 53,100,000 22.2 percentage. All those profit numbers are up and so is earnings per share, which stands at CHF 3 CHF 80. Cash flow from operating activities, CHF 59,800,000 and FTE's 1580. If you look into the future, I'm very pleased to announce that We are confident that we can achieve the $500,000,000 revenue already in this year. That again is a pull forward of our targets. Initially, we thought we can achieve that in 2022. But right now, we are confident given constant circumstances like exchange rates, we will achieve that this year. The midterm outlook is good From 2022 till 2026, we expect an average growth of 15% per annum. We also expect to grow profitably and we will invest over $500,000,000 in the 2022 till 2026 period. Looking at the product categories, you will see that we changed that slightly to give more transparency and to better reflect our business. The first category is Research and Specialties. That's $22,600,000 a plus of 48.1 percent compared to last year in local currency. CMC Development that entails everything that is done together with our sponsors during the development of a new medicine or new drug. This business category achieved $68,300,000 revenue in the first half of twenty twenty one, A plus of 35.1% compared to last year. And the commercial APIs, those are drug substances that are sold to pharmaceutical company for approved medicine or approved drugs. In that business category, we achieved CHF 148,200,000 revenue and that is a plus of 40 0.3 Percent Points. If you look at the geographies, we see that Europe, Asia is at $116,900,000 and North America at $122,200,000 It is well balanced. And this year, Europe is growing a little bit faster at 42.2% compared to America that had an increase of 36.9 percent points. We are all excited about oligonucleotides because they are wonderful medicines And many of them are in development and Bakken stepped into that field and is very pleased to announce that we are progressing a little bit faster than we initially planned, and we are well on track. So this will be a second very strong pillar for Barkam. Peptides and Oligonucleotides, I'm sure will bring this company in the future and will remain very attractive Business Opportunities and Categories. Our goal remains to have sales over CHF 100,000,000 within midterm and we are expanding our commercial activities as we speak and throughout the year. And we get very positive and good feedback from our customers. We will bring into in line new manufacturing capacity that will be used for manufacturing latest in Q4, 2021. Sustainability is very important to everyone at Baqem. And so we are very pleased that our products are inherently sustainable. We produce active ingredients for our drugs and those drugs help people in need, and that is a sustainable business per definition. In addition to conserve our resources and we defined 4 goals and those 4 goals are reduction of energy consumption, reduction of global greenhouse gas emission, improvements in occupational health and safety, improvements in diversity and equal opportunity for the workforce at Bakken. For all four areas. We have very clear and measurable goals and each area has an action plan how we're going to achieve those goals. In addition, we get rated by an independent rating agency, Ecovatis, And we got rated across the group, every site, a silver medal. Whoever is interested to learn more what we're doing for sustainably Sustainability and, on our expert assumptions and ideas is invited to join the deep dive webinar that will take place on the 31st August at 5:30 CAT. With that, I pass it on to Alan, who will dive deep into our financial numbers. Thank you, Thomas. And also welcome from my side. Let's go a little bit deeper into the numbers. The first slide is a quick reminder of the key figures that Thomas already talked about. So let's go directly to the margin, the EBIT margin and the bridge from last year, first half year twenty twenty to the actual margin. When we start with the 22.7% margin, then we have several aspects where we've grown. So there is a contribution from our production cost with a 1.8 percentage, which is mainly driven by our favorable product mix, But also from ongoing optimization of processes and especially also from the economy of scale, volume driven. Secondly, we have the marketing and sales, also positive contribution. But there we have to be careful because of COVID. We still are not able to travel. We still are not able to be present at fairs or roadshows. So we expect that these costs in the near future will increase further. On the R and D, we see that we have a stable number in percentage of sales, which clearly indicates that we invest in our own innovation in our own projects to secure the future of Bakken. Last but not least, our overhead, the G and A portion, it's we have kept the cost stable below our percentage on sales. So we saw also a positive contribution to the margin where we end up with a 25.9 percent for the first half year. And we expect that there is still some roof to improve with optimization and cost measurements that we can improve this EBIT margin also in the near future. On the next slide very important number is the cash flow. It went up 1,100,000 from the first half year twenty twenty, which at the first side doesn't look that impressive like the other numbers. So let me go one step back and compare the operation cash flow before the change in working capital of $68,700,000 to the last year. So we increased our cash there by 18,900,000 to the 68.7. Last year, the change in working capital was mainly driven by a prepayment of customers of more than 20 €1,000,000,000 And therefore, last year, we had an increase in working capital. This year, it's the opposite. We are growing. We didn't have such a prepayment from customers. So we invested in our inventory, mainly starting material to make sure that we can produce, but also have our finished products ready in our stock to deliver our high product high quality products on time to our customers. On the payables and accruals, we have increased mainly in personal expenses on the overtime vacation bonus 13 month salary. So the base on the FTEs we have seen Thomas spoke about is it has increased during the last 12 months. So there is also this impact on the working capital. The operating cash flow, dollars 59,800,000 What have we done with that cash. We have invested it in our capacity in capacity but also maintenance. It's a $54,600,000 we have used in the first half of twenty twenty one. And of course, we also paid out the dividends And we had the change in external debt, which at the end led us in a net change in cash of minus 3 point €5,000,000 in the first half of twenty twenty one. Talking the next slide on the on the debt. We have increased our debt by about €38,000,000 And this was mainly driven by our main shareholder, INGRO Finanzake, who left a big portion of the dividend in the company as a loan and also took over a portion of a bank loan in his also with INGRO Finance. We have still no commitment fees. We have no covenants. So we are still in a favorable situation to bridge our cash need for CapEx. On the equity ratio, we The equity increased by CHF 12,000,000, but of course was driven by the cash out of the dividend in the first half. But still the 63 percent equity ratio, which is a stable number within the bottom. On the last slide, the CapEx Thomas talked about, we invest more than $500,000,000 in 2022 till 2026. In 2021, we have already spent €50,000,000 in the first half and we expect a higher number than €100,000,000 in 2021 the full year. And you clearly see it's about the 21 percentage of our sales that we invest in our CapEx. With that, I would like to give back to Thomas for the outlook on 2021. Thank you, Alan. Very crisp and exciting look into our numbers. I want to talk now real briefly about what are the factors for this dynamic growth we have seen over the last years. And I'm looking at that from a market perspective. And of course, important for a company like us is pipeline, and we are proud of the quality of our pipeline and also the numbers. We currently work in over 150 projects, where we are certain that those will yield additional approvals. In the first half year of twenty twenty one, we I received 4 product approvals. That means that 4 products with, Bakken drug substance were approved by the U. S. FDA. We are proud about that because it was achieved in a year in a period where the FDA could not visit our sites for pre approval inspections, But due to our quality documentation and the trust of the FDA in Bakken operations and execution, they approved those products, anyway. You see the success of our oligonucleotide offering in all clinical stages and we feel a very strong business dynamics there. And those are factors that really drive our business right now. We also see positive signals and action in securing captive market. That means we are able to produce molecules for already approved drugs. And Those are typically sold to larger pharmaceutical companies that did in house manufacturing or and now are able to also source from Bakken. Capacity investments in all GMP locations for future needs. As I mentioned, we invest heavily in capacity. And, it's great to see that we have a very strong expertise in that field with a strong engineering team. And those investments are always on time and the quality of the equipment is such that it gets used the 1st day it's released and It works seamlessly over the period, over the life cycle. We also have external factors. Of course, We see a strong outsourcing trend in pharma and biotech. We see market expansion for peptides in new indications And we see new formulations, especially orals that have very nice launches in the market. And I believe that there is a bright future for oral peptide delivery. With that, we come back to our overview slide for the outlook. As I said, we believe 500,000,000 is possible in 2021. We see 50% average growth for the next 5 years, 2020 till 26. We want to grow profitable and we will invest over $500,000,000 in this 2022 till 2026 period. With that, we are already at the end of our prepared slides and we are happy to answer any questions that there might be. Thank you. So let's have a look at the Q and A. Let's see what we have here. We have one question right now, Franz Abila Bischofberger. About EBIT. EBIT outlook is growth by percent ahead of sales. Is this only meant for 2021 or also for 2022 through 2026? I want to tackle that. I guess that's mine. So it's not only for 2021. We really That's our target also for the whole period to always growth above the sales number. Okay. Do we have further questions? Feel free to ask any questions in the function, Q and A function. We have numerous attendees, so here we go. Maria Policarpu asks, Growth accelerated significantly in the last 24 months, and you've referred to product approvals for last year and the first half of twenty twenty one. Can you give more color on these and the size of the indication? So the question is around the product approvals both for the last years and the first half of this year around the size of indication, what we can say around that? Unfortunately, we cannot disclose the precise indications and sponsors. That's due to the confidentiality of our business. Are there any more questions? Ibelle Bischoffberger asks about oligonucleotides. How will sales development be in the next years? Strongest growth from 2022 due to capacities. I'm not quite sure I fully understand question. How will sales so let's start with the how will sales development of oligonucleotides be in the next years? And I guess The add on is, will the strongest growth be in 2022 due to capacities? I guess, the reference is maybe to the Gubendorf capacity expansion that you mentioned, Thomas. It's certainly true that the relative growth in oligonucleotide is by far larger than in peptides. The capacity is limiting the oligonucleotide growth. If that is the question, yes, and we will continue to add additional capacity as we build more. So we currently don't have any more open questions in the function. And here comes the next one. Yes. Keep them coming. Karl Brown asks, how does the 150 projects compared to 1 year ago. Does this include commercial projects or just development projects? Has the mix shifted between early and late stage? What can I say? We call it pipeline because for us, It's about the new products that go through the clinical phases. So when everyone is approved, it jumps out of the 150 And it's a commercial product, but not a pipeline product any longer. And, we do the very precise pruning and counting of the pipeline at the end of the year. So the very precise figures and the clear analysis we will deliver with the full year call next year in April. So if there is another question, feel free to ask it. Karl Offray asks, What are the terms of the INGRO Finance loan? Alan, that sounds like a question for the CFO. So the Incro Finance is at arm's length. So we compare with the banks. We have an average interest rate of 0.3 percent for all bank loans together. And this includes INGROFINANCE. So it's at arm's length and there is no advantage or preferences for Incro Finance to lend the money to Baja. Eye. Screen says no open questions. We still have some time on the calendar. So anything you would still want to ask, you can pose a question in the Q and A function I'll just wait a moment or 2. Sometimes people are madly typing away and something pops up or you might have a sudden burst of insight and interest. If that is not the case, we would close the call. And There we go. Karl Brown actually, here we go. Used the opportunity to ask another question. How many so one more question here. How many commercial products Do You Manufacture API 4? I was trying to get a sense as to the materiality of the 4 additional approvals. Okay. We produce I think we state that we have around 40, Drug Master Files Ready for our customers. So that would mean, for 40 chemical substances we have to filing commercial products typically on one molecule, we have several. So for commercial product to go into a higher number, I would guess that that's somewhere between 100 to 200. Okay. Anything to add with regards to the materiality of the four additional approvals. I think it's a question also of how significant those 4 approvals are within the context of the broader product portfolio. I wanted to highlight that for approvals, especially for the quality reasons of trust that the FDA has in our work. I think for approvals in half a year is a very good number, but it's not something That's totally out of the expected or average. We work towards approval as we speak and always. So It's a sign of a healthy company and our product portfolio and our top 20 products. It's very diverse, so nothing out of the average, I would say. Okay. There are no more questions. If a question happens to cross your mind there we go, another question. I think I should just keep saying there are no more questions and a question will appear. Maria Policapo asks, how are you building up the 15% CAGR growth rate for the future, so the annual average rate. Given that oh, sorry, it's a combined question in 2 messages. So how are you building up the 15% CAGR growth rate for the future given that 40% is so much higher than what we were discussing last year. I don't know. Well, I think I understand that the 15% rate. We build it up from bottom up. So we look at the products we have, we look at the forecast and our expectation, and then We count that all up and then we look at the growth rate and we do that for a 5 year period. I'm not sure I fully comprehend the 40% here. Yeah. 40 percent half one organic growth. Out of 39% at the current exchange rate. Yes, I think that's an exceptionally good first half year. Okay. Anything else? Have Ernest van Toel asks, have your CapEx plans been impacted by inflationary pressure yet? It is correct that we see some price increase in steel and other commodities, but We will see how transient this will be. Just waiting one more moment to see If we have any more inquiries, I think now We're out of questions, and so I'm happy to thank everyone who has joined us on this call. If you do have anything else that you would like to know or ask us, you have here the email address. So shoot us a message at irbacham.comorformmediamediabacham.com and we'll be happy to respond. And other than that, I thank Thomas Meyer and Anna Schafda for their time and presentations today. I wish everyone a wonderful remainder of the day wherever you are currently based and look forward to seeing or hearing or reading from you again at the next half, not half year, next full year results. Thank you. Thank you.