Q2 2021 Stevanato Group SpA Earnings Call
Situation prove that our high value solution, they're really suitable not only to match that.
Technical specification of the last months also to have a faster response to the upside in demand and our internal engineering capabilities.
<unk> differentiating factors in term of the competition because of weak proved to be faster than antibody asset to match the demand in some of the constraints that you mentioned for sure yet.
They care about our capex to adjust that advanced our capacity to the demand coming from the market, but we are in very good position and we deploy this capacity additional capacity around the world and we are ready to move also at the high end vendor solution easy feel capacity.
Not only in Europe, but we are now but also in the U S and China.
Thank you. Our next question comes from David Windley from Jefferies. Your line is now open.
Hi, Thank you for the results this morning, or this evening for you and I. Appreciate you taking my question I wondered if you could.
Comment a little bit on kind.
Borrowing from Paul's question on how.
Covid is is influencing your high value solutions sales is there much overlap there.
And kind of how do you expect that to evolve.
Thank you for the question.
Let's say, India stated attitude.
The method that we are not the new camera in the vaccine space.
Working with.
Biggest play in the market that is the case. So we thanks to the intimacy with such customers, we can adjust our production for the future anytime over the technicality is linked to our high value solution, we prove that the glass container solutions.
The best choice to also for a magazine.
Our request linked for.
For example to the core of the chain and the supply chain for vaccine.
So we think that after this year and next year.
<unk> seen for Colgate that we land at the end.
More or less.
Normal business in four vaccine treatment.
Okay.
On your backlog I don't believe.
I have a number for.
For the comparable Q2 of 2020, if you'd be willing to give that I'd love to get it but.
Spirit of the question is that your backlog growth year over year is substantial.
The first quarter and then it looks like it's sequentially double digits from the first quarter of this year.
To the second quarter.
And.
You've already mentioned visibility is quite high it seems like Europe.
Your visibility to this year's revenue based on backlog is substantially better than what it probably was last year and so.
I guess I wanted to understand.
How conservative your revenue assumptions are for this year and or how much of that backlog is giving you greater visibility into 2022.
If you understand the question hopefully.
Yes.
And I'd give you the general.
Who would peak and then maybe micro may comment on.
About the financial where should the visibility is very high and the demand is very strong demand is very strong because the market is growing and we anticipate some investments as to Aloha to EBITDA right to answer it to our customers, but nevertheless, our business.
As a.
Some factors that impacted the timeline.
Leif.
The building the Elisa supply chain with a rising level of the Boston and support for our customers. The lead timing production and then all the planning activities.
A little hard to have a very robust answer to our customer to meet.
Their expectation for sure now is very easy to say that the coverage for these.
Very high very good.
There is the possibility to have upside that we believe it.
The guidance that we provided.
Sure.
Fifth.
Relative to Kroger announced that through aggressive is that fair expectation for this year.
Michael EMEA up for me.
More fleet.
Just to complete the as.
David.
Same period, we had about 396 million you would of backlog.
As you know we went up to 605 at the end of 2026.65 at the end of Q1, and we have now a Senate Honda.
We have much better visibility.
As Franco was saying between them.
Same store idea realize then.
Expected saves coming from backlog in the second battlefield Colbert by 94%.
And we are starting also building the backlog for next year.
Our next question comes from Dan Leonard from Wells Fargo. Your line is now open.
Thank you. So I was hoping you could offer some insight into your conversations with customers on the Covid business and how far in advance you are having discussions nowadays are you talking about customer demand needs in 2022.2023, any any insight you could offer.
It's very important that thank you for the question there is a very important to say that we.
Because of the intimacy with our customer.
For many many years leveraging our not only the manufacturing.
Platform, but also the scientific technology offering.
Embedded in our integrated offering.
So we tried to work with them in anticipating their needs.
And for sure they gave us some visibility above them.
The peso and therefore, the 2002 and maybe also for the 23 income all general view, but it is very early to say what they are really because of the transition to multi dose by up to a single dose.
The potential position to syringes and all the other.
Certainly the level of income to the bookstore events on so we have good visibility, but we can also state that there is a full visibility about the COVID-19 impact in the next few years.
Okay. That's helpful color and just a quick follow up Marco what's your tax rate expectation for the year for 2021.
Did normalize Brian is 24%.
We have been the normalized because in first quarter, we had.
A one time positive event, we reached an agreement with Italian tax.
Benefiting by $5.5 million.
Tax savings due to the patent box.
Tanya Thanks Lou.
But the normalized 24%.
Got it thanks for the help.
Our next question comes from Ron has on days.
Bank of America. Your line is now open.
Alright, Thank you good morning.
<unk>.
<unk>.
A lot further details on your capacity expansion plans I have a couple of questions on this topic.
First what is your current average level of capacity utilization across your network.
Where that covered might've helped utilization, but how long did it take for capacity added over the last five years since 2016 to reach the current utilization level.
It's a very good question.
We are expanding our capacity in the bandwidth of any phone call visit and the after COVID-19.
We accelerated some investment to be faster and thanks also to our colleagues in engineering, because they had with us to provide that and then magazine faster response to these emerging needs.
Income of utilization, we are we used to plan accordingly to the standard practice is to have enough.
Long time up for preventive maintenance or the top of that.
Our supply chain robust and.
Take up of that certainty for our customer. So we are at the very good level of Digitization worldwide.
<unk> bye.
In the field.
Hi configuration.
And.
We used to maintain this high level.
Occupation, but.
Answering your question about the hallmarks of what we need.
Some time, we need that to where each of these levels utilization. This is the brewery three key points of the very interesting point of our stepped up because we don't need them. So much time, because if we add in January now so when we have to expand the capacity we are very far so we don't need the long.
Time to establish the capacity and then ramping up the utilization we are.
Much faster than anybody else because we can tune the expansion of the capacity very close to the emerging needs.
Thank you and if you could put a number on that utilization level, we just accounting for the necessary downtime and changeover.
Typically in the industry full is defined at around the low Eighty's would you say, it's 60.70, 80% utilized.
Put a number to that and that's what I'm looking for.
It's daniele different production lines that we are in the range.
88, 5%.
Our next question comes from Patrick Donnelly from Citi. Your line is now open.
Great. Thanks for taking the questions guys maybe to stay on the facility expansion topic can you just talk about what the spend is going to look like over the next few years I know you talked about Indiana revenue generation in 'twenty three China, maybe more 24, I guess over the next two years, how should we think about the spend and the impact on margins until they're fully ramped up.
I'll give you the picture Patrick Thank you for a question and then macro may have to have more color on financial.
The idea is as you mentioned to have the first revenue generation coming from the U S. Plant later 'twenty three beginning of 'twenty four and at least.
Six months.
More to having the first the revenue generation in.
In China.
The total amount of money, we are ready to invest.
To expand our high value solution and that's what we're putting manufacturing is in the range of $300 million.
Europe and we have deployed these.
Total investment more or less to an offer.
We expect.
In the longer run to have.
Revenue generation in the range of $300 million euros.
Note too that our comparable bucket of the different.
But you know there are mainly.
Things that we can also adjust and tune our best at the best during the crucial in these investments so.
Six or seven years from now.
In the right position to start up these investments and we are already we have already stopped or doing something in U S and.
Beginning of next year, we have some news about the China.
Michael if you can provide the more of the day's income up to 90 would be up.
Yes, just to complement the so first of all we outlined allocating investment we have already died he had in Italy with DCC and less so we know very well the technology and the steps to be done in order to that pool.
The two new facilities.
The total of our investment do we experience a vertical.
I would've thought he had I mean, the investment in Italy.
Fall, 20%.
And also in China and U S. So we are targeting <unk>, but all of those so we expect.
High teens.
Alright, I would've thought 90 days to Neil.
Plans are.
Design I want expectations.
That's helpful and maybe Marco staying with you on the margin piece, just obviously, it's been a few questions around COVID-19 and what the revenue could look like can you just refresh us on the margin profile of the Covid business is that any different than kind of the core just trying to think through what that could look like if it's a bigger number next year or anything like that.
Thank you for the question.
Product line by product line, we are not experiencing different gross margin I mean, if we sell a high value solution. We are experiencing the same level of margin between call. It then I'll call it.
Same for box solution. So I wouldn't say, we have a different margin profile related to call.
Sometimes the mix is pushing more towards a high value solution as Franco was saying before.
April with April we are not experiencing different margin.
Great. Thank you.
Right.
Our next question comes from Justin <unk> from William Blair. Your line is now open.
Hello, Good morning, guys I'm, calling in for John Kreger day Congrats.
Congrats on the quarter and thank you for taking the questions.
So previously there are a lot of talks about COVID-19 vaccines moving to single dose vials.
Is that still the case based on what you've heard or do you think the sort of anticipated large scale rollout rollout a booster shot in the U S will likely keep it in the multi dose format.
Thank you for the good news is very interesting and we are trying to monitor at visa evolution that together with our customer to adopt the supply chain for the future.
Half a mile road to had this quarter was the bulk of these the relationship with a major multiple important players in the vaccine space to have to give you. The full scenario sure. Thank you Franco add just.
Maybe to come back a bit to what we said during the.
Our road show actually one of the reason why we are so.
So good and intimate relationship with the customer because we have them.
Starting from the development phase with our solution to reach the patient in a.
Faster way, so now as Franco mentioned before it is really too early to tell.
The future of Covid back what we can say is that continuing partnering with our customer is providing some indication on which the major France could be in the future and you mentioned the capital. So for multi dose single dose is something which is for sure happening and at the same time also evaluating.
M C.
<unk> solution in order to have a single as those are ready to go to the market for the customer so lots of moving parts in the market today, but what we can say is that we are really very well positioned in order to respond to these emerging trends specifically, thanks to our engineering all the suppliers of the business, which is actually responding verify.
Foster to this kind of customer request and movement in the market.
Understood. Thank you for that.
And just I guess, one follow up question on the capacity front. So can you review your ongoing.
Facility expansion projects outside of the U S and China.
And where do they stand right now.
But the capacity expansion, we are investing also in volume production.
Our network of facilities around the world.
We have a Sam expansion also in the plastic business.
U S.
More of our investment.
In Europe, but now we are really focused in that space.
Our high value solution platform that can deliver the best fast to the needs of our webcast.
So for the next year, we are really focused on that DSO Gucci, all our investment in U S and China and in the meantime, we are bridging these capacity.
He is asami Samantha also in Italy that the wheel hub.
It's hard to move the production.
That jump from Italy to the new geographies in the next three four years.
As another reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Next question comes from Joe <unk>.
<unk> from Morgan Stanley. Your line is now open.
Hi, everyone. Thanks for taking the questions.
Just to go back on the backlog for a moment it sounds like you have good visibility for this year, maybe some partial visibility for 2022, but just as you look at the backlog today can you just maybe discuss or breakdown.
What backlog is from broadening your current customer relationships versus new partnerships, new customers or just.
Geographic expansion.
Early days with geographic expansion. Thank you.
Okay sure.
That's a very important point that this is the pipeline pipeline of new products.
Additional business for the future the most of their current.
Backlog is obviously linked to establish commercial production, because you know very well that being our market that to the developer and new projects.
At the same time, but we are really.
Early engagement with our cast.
In some very important projects and those who are in this case I think that the macro may have some color on that.
Thank you Franco so yes, we are really proud of our present pipeline.
Typically also in the biotech space and Biosimilar space. Because this is what is of course, a sustaining and providing visibility and growth for the future.
We can say that one of the main reason for our position in that that pipeline today has been really the critical support our services through our attack in Boston and in Italy, we're able to provide to customers.
Not really to half of them to choose the right, but our containment solutions since since the beginning so we had a really good OEM allowed in this supporting our customer in scientific and technology related areas. So in the pharma.
Last five years, we have more than doubled the molecules in which we are in today and we can say that with our today 11 nine different projects different molecules, we are really well positioned.
To grow in the future.
As a high value segments.
Okay. Thank you and this might be a question for Marco.
But just on <unk>.
On the gross margin trends in the back half of the year I mean would there be any reason that gross margins would step down in third quarter fourth quarter from your current second quarter levels, just as you look at having more.
More high value solution mix the facility build out it sounds like it might be later this year. So it might not be a full hit there but just.
Curious on the gross margin trends and then just would you be comfortable putting out a number for free cash flow or capex for 2021. Thank you.
Yes. Thank you for the question, we expect gross margin in Q3, and Q4 to be consistent with second quarter. So above 31% that is using our.
Guidance, let's say.
So the going back to the backlog the mix is positive it's consistent with the with <unk>.
We are experiencing we are moving more and more to what I vaguely solutions geographically, we didn't reply, but we hadn't got only multimodal in Asia Pacific as you can see in the first half of the top seven.
79% in Asia Pacific and 38% in North America. So we are confirming the trend too.
More and more to us.
Does that asset.
So we expect a consistent gross margin in Q3 in Q4 compared with the second quarter.
About the question about cash flow, let me start with saying that the we start with a variety of both balance sheet now because we add.
250 media yourself net debt as of the end of Q2.
The leverage of one with the last 12 months of EBITDA.
On top of it we received the pie might equal or exceed the so we have now in a position where we have went on those 65 mid yourself positive.
Net financial position.
The important thing to be measured in the next months would be the outflow of money for Capex as mentioned many times, we are investing in the U S and China for expanding our <unk> capacity.
Okay.
Worst case, we expect that 180 <unk>.
Millions of that Capex for the current year, we the landing.
Net financial position of 121 under the 25 positive cash position.
So we are in a safer position in an auction as mentioned.
Sure.
My speech before.
Thank you. Our final question comes from Jon <unk> from UBS. Your line is now live Tim.
Thanks for taking my question I guess, just one on M&A could you talk a little bit on what areas. The company is looking at.
The company is currently around one times Levered today. This company have a long term leverage target that you provided.
May I have to tell you again.
Because the language.
With the.
Sure Jeff.
On future M&A, what areas is the company looking at and then the <unk>.
Companies around one times Levered.
We have a long term leverage targets that you provided.
Yes.
I'm pretty clear.
Sorry to ask.
<unk>.
First of all of our broader.
Integrated offering is very robust, but we are really focused on exploiting all of the potential about the existing platform all of our solutions.
We can expand.
Also income all different geography, we mentioned several time is if you provide senior U S and China. Nevertheless, as you know we are.
Monitoring opportunity is to expand.
Our capability is something.
I think that is the that can complement our work for these things integrated offering.
Dementia some.
Income Thats all appropriate protocols in DDS some technologies.
Injection molding like Microfluidics, we have some interesting opportunities to exploit in the molecular diagnostics.
And also in time of.
Design company for the design of new solution as the CVA more these are potential M&A opportunities, but we are not under pressure to execute any M&A. If you don't see the right transition to have the value to our integrated offer to our customers or to our shareholder.
So we are the last business defense and we will apply disciplined in capital allocation.
With a very selective approach for the next few years.
<unk> financial strength strong position, we don't have pause to make the right choices in the future.
Yes, the backbone and furniture.
Yeah about the leverage we like to play with the shipping and safer, but Florida, we're seeing an important strategic opportunity we already tool to have.
In the range of $2 five of leverage between net financial position and obviously that condition.
Condition is to create great value.
Got it and if I could just ask one follow up.
Can you talk a little bit maybe on growth trends and some of the Bds sub segments in the quarter across <unk>.
Close containment IBD and Bds.
Yes.
Deep days, but in any case as in the past we are keeping an expedient seeing about 15% of our overall sales are represented by ingenuity.
That 15% by in vitro diagnostic in DDS together and there are many 70% is related to container closure system. So we are consistent with this with this growth we are growing in.
Each business line and product line, we are growing more rapidly as <unk> shown in iPad solution.
In the first half of the year, we went up 37% and constant currency basis, we would have gone up by 33% year over year. So this is where we are growing more rapidly consistently with our plans.
Got it.
That was our final question. So I'll hand, you back to the management team for closing remarks.
Yes, good morning clinical state answer speaking, so I want to just take the one maintenance in order to be the impediments feedback from the board and the management team also let a customer after this.
Boston <unk> yield of seven other group so the board and the management team at extremely happy and motivated portable to get done because it is an important step for us to announce of <unk>.
And also our customer I'm extremely happy to Cisco announced the group to continue to be present in the pharmaceutical industry to continuously invest in the pharmaceutical industry. It also with a proceed so today or the organization is fully committed to exit viewed our strategy in order to continue to to growth together with our cost.
Our big focus is to really build that.
Investments to in order to be more close in proximity to two of our webcast of the worldwide and the fact that we have with <unk> that will allow us more financial flexibility is even more important that well perceived by the customers. I also want to thank you all of you because in this month, we learn a lot in order to do was to have more diesel.
Police in when we built but also to deliver but also that I had to wait for the shadow of them also even more bullish than necessarily today, our big focus on the customer the employees even more than you invest that arthroscopy is done at the group. So there is a new agribusiness I knew ahead of time and outlook, but is a very nice moments with us. Thank you.
And that concludes <unk> groups second quarter 2021 earnings call. Thank you for joining US we appreciate your support.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.
Okay.
Yes.
Yes.
Okay.
Okay.
Okay.
[music].
Yes.