Fagron Sa Ord

Hello and welcome to Fageren Full Year Results 2022 conference call. My name is Priscilla and I'll be your coordinator for today's event. Please note this call is being recorded and your lines will be on listen only. However, you will have the opportunity to ask questions at the end during the Q&A session. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0 and you will be connected to an operator. I will now hand you over to your host, Ms. Karen Berg, to begin today's conference. Thank you.

Thank you. And welcome all to the results call for Fagron with our full year 2022 results. My name is Karen Berg, as said. I'm here together with our CEO, Rafael Padilla, and our CFO, Karen de Jong, who will discuss the numbers in more detail. And afterwards, we will have room for questions. So with that, I would like to hand over to Rafael.

Thanks, Karin. Good morning and welcome all. Before Karin and I state your questions, we will go through the presentation where we will explain the highlights of 2022. We will elaborate on current macroeconomic developments and how they played during the year and deep dive into the regions where we operate. After this, Karin will guide us through 2022 financial performance and 2023 guidance. we will conclude and open for Q&A. In 2022, we have operated in a fast-changing and uncertain environment. Therefore, we are pleased to see top-line growth supported by organic growth in EMEA, North America, disciplined M&A, while we have seen A4X in. In line with guidance, the second semester recurring EBVA of 19.8% excluding our Boston facility, is ahead of the 19.3% in the first one, implying full-year reported margin of 19.1%. Following our structured and disciplined M&A approach, we completed five very attractive acquisitions in 2022, showing continued focus on adding capabilities to the group. Our strong cash conversion of 70% supports balance sheet strength shareholder value creation, and M&A execution. ESG remains a key strategic pillar for us, and amongst other topics, our greenhouse gas intensity reduction was outstanding with a decline of 20% versus target of 15%. Lastly, we have proposed a dividend of 25 Eurocent per share for the year. Moving on to the next slide, We currently experience a fast-changing environment where agility and guaranteeing the highest quality standards are key. Looking at the external risk, inflation remains high. We manage by dynamic pricing pass-through and, on the operations side, by negotiating better procurement terms. Regarding the competitive landscape, we aim to maintain leadership in all our markets by strengthening our commercial approach. balancing competitive pricing and being unique with our brands. We offer the widest portfolio and aim to set the highest quality standards in the industry as regulatory environment evolves. Being the leading global compounder, we have strengthened our quality management organization by appointing a global head of quality. And we continued implementing our global quality systems across all our regions. Also, we commit to invest in state-of-the-art infrastructure as the one announced today for Anastasia Health in order to remain well ahead of expectations. Moving to supply chain risk on sourcing, again, given our global large scale, we have a broad supplier base and we continue to further broaden our options. We have intensified our procurement and supply activities resulting in stronger purchasing power and better logistic terms finally on our internal business drivers on operational excellence while we always focus on it it has now become necessary to be our key strength to support our activities across the globe to be more competitive and have better cost management regarding our discipline mna activities 2022 has been strong, welcoming, PharmaPak, Hyperscan, Purify in Europe, and both Letco and FSS Boston in the US. We continue to look actively for opportunities across all our markets. Now we move on to the regional update. EMEA's growing trajectory continues as a result of the strategic actions taken as centralized production, streamlined back office, brand rationalization in the Benelux and reinforcing registration and licensing capabilities. In a very relevant note, our compounding service activities in the Netherlands show further stabilization and growth. As stated in the previous call, our CGMP repackaging facility in Poland is fully operational and we start seeing the benefits out of it. Also, our central brands manufacturing facility in the Czech Republic concluded successfully a regulator CGMP audit during the last quarter. For this region, continuous pricing pass-through exercise is very important, and we are progressing well despite increased customer sensitivity to this. As we explained, we continue diversification in the MENA region by performing outstanding in markets such as Italy, Denmark, or Israel. Moving into LATAM, this has been the most impacted region based on external factors. In Brazil, where we have seen a 10% drop in scripts on the back of inflation, leading to greater competition, which has intensified as there were some changes in ownership of current players. Despite that, we maintain our market share. During Q4, our performance has been further affected by the Football World Cup, resulting in five less working days and by the election. In order to maintain market leadership and drive operational efficiencies, we're executing on back and front office projects such as centralizing all our warehouse activities started in 2022 and being finalized at the second semester of 23. We have also optimized our brands by merging three of them into one called Savita to gain efficiency and improve innovation capabilities. Thanks to these initiatives, we have seen margin improvement during the second semester of 2022. During Q4, our Brazilian CGMP repackaging facility was audited by Anvisa and concluded successfully. Anvisa is one of the toughest authorities in the world. In 2022, we also continue to further diversify into Mexico and Colombia. Into the first semester of 23, we expect to see a continuation of the market conditions we have seen in 22 and remain committed to strengthen our market leading position in Brazil as it is the second biggest compounding market in the world and long-term fundamentals remain attractive. Moving into North America, the market opportunity is increasing as well as regulatory scrutiny creating opportunities for us. We decided to invest additional capex in the TAMPAS and ASEO facility in line with our strategy of having the best-in-class infrastructure and support the underlying growth at long run. For the region, we are benefiting of our global operational excellence programs, including supplier base to support our business operations, and we have already seen early signs of easing syringe shortage. On our B&E division, regarding the Minneapolis warning letter, we have a greater impact than expected as we have taken a more conservative approach and deliberately delayed the sales from this facility to enable a seamless closure of the audit. We are also accelerating our original integration plan by increasing the transfer of sales to our LEDCO facility. In December, we started as well the merge of both Fagron and LEDCO commercial teams. These actions will ensure the strength of our position, and we expect to see an acceleration of sales growth during the second semester of 2023. In line with our strategy of having the best-in-class facilities, we're assessing the investment requirements for a new CGMP repackaging facility in Alabama, which will provide capacity expansion. Moving into FSS, we have exceeded the 110 million run rate for both Wichita and Boston. Again, we see early signs of easing syringe shortage, and in January, we have hit the 100 million run-rated mark in Wichita. We are committed to the target and expect a progressive step up through 2023, with the timing being dependent on supply chain and operational factors. Particularly, as we ensure quality remains of the highest standard. Regarding Boston, as you recall, strategically, the purchase of this high-quality asset is very important for us, as we have presence in the Northeast, more capacity, and redundancy. The integration is on track, having now 16 licenses, and we expect to be break-even during the second semester. Going forward, we will focus on getting the main state licenses, onboarding new customers, and aligning the process from our Wichita facility. And finally, We are very much pleased with the developments of our health and wellness division, Anazeo, who is capitalizing the strong underlying demand for personalized treatments. To end this first part, moving on to the next slide, pharmaceutical compounding is ESG at its core. Currently, medicine shortages represent a global health issue, and thanks to personalized care, we contribute to make accessible many different treatments to vulnerable patient groups. We experienced lack of important medication like antibiotic solutions based to treat children. As we speak, one of our most important brands, SIRSPENT, is supporting hospital and compounding pharmacies to prepare them. On environmental, we have exceeded our carbon footprint reduction by achieving 20% decrease compared to target of 15%. And on 2022, we performed our yearly global employee survey with a 84% sustainable engagement score. Now Karin will cover the 2022 financial highlights.