Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Solid progress in H1 with marked improvement in profitability and operating cash flow.
- Upgrade in 2024 guidance to high-single-digit revenue growth with a positive mid-single-digit EBITDA margin.
- Peptide market continues to accelerate, positioning PolyPeptide Group AG (XSWX:PPGN, Financial) as a key player.
- Target to double revenues by 2028 and expand EBITDA margin from -2% in 2023 to 25% by 2028.
- Operational excellence program driving improvements in manufacturing planning and execution, resulting in higher capacity utilization.
Negative Points
- Development business saw a decrease of EUR 3 million compared to 2023.
- Higher people costs driven by an 8.1% increase in headcount, impacting profitability.
- Significant investment in inventory ahead of planned growth in H2 2024, affecting cash flow.
- Ramp-up costs for new large-scale capacity in Braine impacting H2 2024 margins.
- Potential competition from new entrants in the peptide market, increasing market pressure.
Q & A Highlights
Q: Could you provide more insights on the progression curve for your midterm sales target? Will it be linear or have significant boosts at certain points?
A: The growth will not be linear. It will accelerate when new capacity comes online and then stabilize before the next capacity addition. We expect healthy growth in 2025 and 2026 due to new large SPPS capacity coming online. More details will be provided in our 2025 guidance at the end of this year. (Juan-Jose Gonzalez, CEO)
Q: Why do you only expect a moderate improvement in H2 EBITDA margin despite higher sales? How dependent is this on the success of ramping up Braine?
A: The margin in H2 '24 is impacted by the ramp-up costs of the large-scale asset in Braine. We are fully staffed and running all tasks, which affects profitability. The production ramp-up is expected in the second half, and these costs are significant. (Marc Augustin, CFO)
Q: How much of the 2028 revenues are secured or de-risked versus how much is yet to be won?
A: Pretty much all the growth from now to 2028 is already secured through commercial contracts we have announced. This gives us confidence in our midterm guidance. (Juan-Jose Gonzalez, CEO)
Q: Can you elaborate on your modularity approach for capacity expansion?
A: Modularity involves building mid-scale manufacturing lines with advanced innovation, which are then deployed across our multi-site network. This approach has lower execution risk, faster deployment, and provides flexibility to customers. It also allows us to integrate new innovations more easily. (Juan-Jose Gonzalez, CEO)
Q: How do you expect to fund the additional CapEx investments from 2025 to 2028?
A: The key points for financing are improved profitability, increased operational cash flow, disciplined working capital management, and strong collaboration with customers on new investments. (Marc Augustin, CFO)
Q: What are your pricing assumptions in the new 2028 guidance? Are prices pre-agreed or renegotiated annually?
A: We have multi-year contracts with pre-agreed prices that include inflation clauses. The current market environment allows us to negotiate favorable terms without facing pricing pressure. (Marc Augustin, CFO; Juan-Jose Gonzalez, CEO)
Q: How confident are you in your midterm targets given the unpredictability of customer demand?
A: Our midterm outlook is based on signed contracts and does not account for new customers or our pipeline of 29 Phase 3 projects. This helps derisk our targets and ensures our ability to deliver. (Juan-Jose Gonzalez, CEO)
Q: Will the capacity expansion be more linear or concentrated in certain years? Where will you increase capacity?
A: The expansion will not be linear but will average around 15% to 20% of revenues from now until 2028. It will be aligned with specific customer projects and will focus on strengthening our multi-site network. (Juan-Jose Gonzalez, CEO)
Q: Do you expect more competition from other CDMOs or in-house manufacturing?
A: We expect more competition from both existing players and potentially new entrants. However, our focus on innovation, development, and modularity will differentiate us in the marketplace. (Juan-Jose Gonzalez, CEO)
Q: How do you plan to manage the ramp-up costs and headcount increases?
A: The current headcount reflects the ramp-up of the large-scale asset in Braine. Future expansions will also require additional FTEs, but at a lower level compared to Braine. Ramp-up costs are significant and impact margins, but we are managing them carefully. (Marc Augustin, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
