DGAP-News: SYNLAB AG
/ Key word(s): Half Year Results
12.08.2021 / 07:29
The issuer is solely responsible for the content of this announcement.
– Revenue almost double for the second straight quarter: +96% growth in Q2’21
– Sustained strong SARS-CoV-2 testing volumes, 7.5 million PCR tests carried out
– Underlying organic growth acceleration at +11.7%, lifted by UK hospital outsourcing contract
– H1’21 revenue of EUR 1,923 million, above expectations
– H1’21 adjusted EBITDA of EUR 663 million compared to EUR 679 million for FY’20
– H1’21 record unlevered FCF of EUR 428 million driving major leverage ratio reduction to 1.4x
– On track to exceed 2021 M&A target: 12 deals completed, agreement to buy Mexico lab platform
– Upward revision of 2021 guidance was provided on 8 July
SYNLAB, (ISIN: DE000A2TSL71, SYMBOL: SYAB) the largest European clinical laboratory and medical diagnostic services company, announces its unaudited consolidated H1 results.
“SYNLAB’s results for the first six months of 2021 are outstanding, reflecting great focus on execution. More than 18 months of relentless effort leading the way in COVID-19 response with over 30 million tests have not deterred us from our growth agenda. Our underlying organic growth is accelerating, driven by the continuous roll-out of growth initiatives, including a sizeable contribution from one of the largest hospital outsourcing contracts ever granted in the UK. We are on track to exceed our 2021 M&A target: we have completed 12 acquisitions since the beginning of the year, have agreed to purchase a leading laboratory platform in Mexico and our pipeline is very promising. With 2021 results set to be materially above our initial expectations, as shown by the upward revision of our guidance on 8 July, we are best positioned to capture the multiple growth opportunities of the diagnostic services market” says Mathieu Floreani, CEO of SYNLAB Group.
SYNLAB Key figures (€m)
H1’21 highlights: outstanding results
Nearly doubling of revenue on an organic basis
H1 2021 revenue increased by 96% to EUR 1,923 million (H1 2020: EUR 983 million). Growth was mostly organic at 95%, with similar growth rates in Q1 and Q2 2021.
H1 2021 saw sustained strong SARS-CoV-2 testing, against a comparable period last year which was impacted by a significant SARS-CoV-2 attrition impact. Since the start of 2021, testing volumes remained at elevated levels across all SYNLAB’s geographies, with 14.5 million PCR tests and 2.2 million non-PCR tests performed. The estimated SARS-CoV-2 total revenue contribution was ~EUR 829 million for the period consisting of EUR 853 million testing revenue (~EUR 124 million in H1 2020) netted against an estimated EUR (24) million attrition impact (EUR (158) million in H1 2020). Virtually all the attrition impact in H1 2021 was recorded in Q1.
Excluding SARS-CoV-2 testing, but including the tailwind from lower attrition, total organic growth was +25% in H1 2021 and +44% in Q2 2021 alone.
Underlying organic growth, which excludes both SARS-CoV-2 testing revenue contribution and the positive impact of lower attrition, was 7.6% in H1 2021, with acceleration in Q2 2021 to 11.7%, lifted by the contribution of the South-East London (SEL) hospital outsourcing contract, which started on April 1st 2021. Without the contribution from the SEL contract, the underlying organic growth in H1 2021 was 3.6%, supported by successful “For You” growth initiatives, and in line with the 3%+ set as a long-term guidance.
By Segment, underlying growth rates ranged from slightly positive to strong double-digit:
– France (23% of H1 Group revenue) recorded underlying organic growth of 0.4% in H1 2021: solid volume growth was partly offset by the expected price decrease as per the 3-year agreement with the French health authorities, implemented in Q2 2021. SYNLAB continuously implemented its “For You” growth initiative, notably around the optimization of its Blood Collection Point (BCP) network.
– Germany (19%) recorded underlying organic growth of 2.9% in H1 2021, driven by strong Q2 2021 volumes and a catch-up effect following slower growth in Q1 2021.
– South (28%) recorded underlying organic growth of 5.5% in H1 2021, with countries ex Switzerland (86% of South revenue) recording average growth of 8.3%. Switzerland (14% of South revenue) was impacted by price reductions implemented in December 2020 and the rollover effect of 2020 customer losses, with the latter now starting to phase out. Other countries experienced volume growth, broadly stable prices and the positive impact of “For You” growth initiatives, mostly around opening of new BCPs. Iberia (31% of South revenue) recorded low single digit underlying organic growth, while Latin America (16% of South revenue) and Italy (39% of South revenue) achieved high single and double digit growth respectively.
– North & East (30%) recorded underlying organic growth of 24.8% in H1 2021, lifted by the UK (20% of revenue), which grew by a triple digit percentage in Q2 compared to the same period last year thanks to the contribution of the SEL contract from April 1st 2021. Excluding SEL, underlying organic growth was 6.9% in H1 2021, driven by volume growth, a positive pricing impact and specific “For You” growth initiatives such as the rollout of electronic order entry for new prescribers in Austria and the opening of new BCPs in Belgium.
Profit further increased due to volume leverage
H1 2021 gross profit grew by 97%, to EUR 1,447 million (H1 2020: EUR 736 million), driven by procurement efficiencies for PCR test reagents, reducing the dilutive impact of such tests on gross margin. Gross margin reached 75.2%, expanding by 30 basis point compared with H1 2020.
H1 2021 adjusted EBITDA increased by 3.4x and reached EUR 663 million (H1 2020: EUR 193 million). This compares to EUR 679 million of adjusted EBITDA recorded for the full year of 2020. The organic increase of adjusted EBITDA was EUR 468 million compared with H1 2020. In addition to higher gross profit, this was driven by strict management of personnel and other OPEX costs and supported by productivity gains related to the SALIX program (EUR 9.5 million positive impact in H1 2021). These productivity gains included significant procurement savings attributable to the core lab equipment renewal project. The strong volume leverage translated into an adjusted EBITDA margin expansion, at 34.5% (19.6% in H1 2020).
H1 2021 adjusted operating profit, increased by 5.2x and reached EUR 569 million (H1 2020: EUR 110 million), with the margin expanding materially to 29.6% (11.2% in H1 2020). This compares to EUR 504 million of adjusted operating profit recorded for the full year of 2020. D&A before customer relationship amortization was EUR 93 million, including accelerated depreciation of PCR testing equipment and additional depreciation coming from assets relating to the SEL contract. All segments recorded very material, volume-driven, margin expansion, with a particularly notable margin uplift in the North & East segment, driven by SARS-CoV-2 testing contracts in the North region.
H1 2021 operating profit increased by 7.2x and reached EUR 515 million (H1 2020: EUR 72 million). Total adjustments amounted to EUR 54 million, including EUR 25.1 million of customer relationship amortization, EUR 19.5 million of IPO-related costs and EUR 9.5 million of other adjustments, mostly related to acquisitions.
The H1 2021 financial result was a net expense of EUR 75 million, down by EUR 25 million compared to H1 2020. This major decrease comes from a combination of lower borrowings and lower borrowing costs. The SYNLAB average cost of borrowing reduced from 4.2% in H1 2020 to 2.5% in H1 2021.It is expected to further reduce in H2 2021 at ~2.0%.
H1 2021 income tax expense was EUR 112 million (EUR 5 million in H1 2020). The effective tax rate was 25%, lower than the 28% normalized rate due to the activation of tax losses carried forward. The increased absolute tax expense compared to the previous period results from the strong performance of the business.
H1 2021 net profit (Group share) was EUR 343 million (H1 2020: EUR (21) million). A residual sale of the A&S business, classified as discontinued operations, had a positive EUR 17.9 million impact on net profit (Group share).
Basic earnings per share reached EUR 1.65.
Record cash flow generation
H1 2021 operating cash flow from continuing operations expanded materially, to EUR 523 million, driven by profit growth despite the negative impact of SARS-CoV-2 testing activity on working capital. DSOs however improved to 61 days at the end of H1 2021, compared with 67 days at the end of H1 2020 (and 63 days at the end of H1 2019).
Total CAPEX (including Leases and related interest payments) was EUR 95 million in H1 2021 (EUR 84 million in H1 2020) representing 4.9% of H1 2021 revenue (8.5% in H1 2020). It included EUR 5.1 million of COVID-19 related CAPEX.
Despite the CAPEX increase in absolute terms, strong operating cash flow led to record unlevered free cash flow of EUR 428 million. The cash conversion ratio (Unlevered free cash flow / adjusted EBITDA) was 65%.
Strong balance sheet and returns
In addition to the EUR 394 million of net proceeds from its successful IPO, the strong cash generation of H1 2021 enabled SYNLAB to further delever organically. At the end of June 2021, its adjusted net debt stood at EUR 1,632 million compared with EUR 2,254 million at the end of December 2020. The leverage ratio dropped to 1.4x compared with 3.3x at the end of 2020, the lowest level achieved since the creation of the SYNLAB Group. In August 2021, SYNLAB proceeded with the early repayment of a EUR 75 million loan due in 2026.
Total capital employed amounted to EUR 3,791 million and the return on capital employed reached 20%, boosted by the material profit expansion.
M&A roadmap well on track (as of August 12, 2021)
On 26 July 2021, SYNLAB closed the acquisition of Gruppo Tronchet in Italy. With annual revenue of EUR 22 million in 2020 and a dense network of 17 patient-centric healthcare centres in and around Bologna, Gruppo Tronchet is a long-standing, crucial provider of healthcare services in the Emilia-Romagna region. In addition to diagnostics, Gruppo Tronchet is specialised in medical visits, physiotherapy and rehabilitation, as well as occupational medicine. Gruppo Tronchet’s strong regional presence and its integrated service offering make SYNLAB the leading provider of healthcare services in the Emilia Romagna region and strengthen the company’s number one position in Italy.
Since the beginning of the year, and including Gruppo Tronchet, SYNLAB has completed 12 acquisitions for a total Enterprise Value of about EUR 108 million.
In addition, on 2 August 2021, SYNLAB reached an agreement with Medica Sur for the acquisition of 100% of a leading laboratory platform in Mexico. Subject to customary anti-trust approvals, and with closing expected in Q4 2021, SYNLAB will acquire a dense network of more than 100 diagnostic service points mainly located around Mexico City and Puebla which achieved revenues of MXP 1.3 billion (EUR 55 million) in 2020, including COVID-19 testing services. This deal will provide SYNLAB with a strong platform to further expand its position in this key Central American market and further strengthens its successful operations in Latin America.
Based on the above transaction and its promising pipeline, SYNLAB is well on track to exceed in 2021 its mid-term annual M&A spending target (~EUR 200 million per annum, on average) adding further impetus to growth in 2022.
FY 2021 outlook raised on 8 July
Revenue is expected to be within a range of EUR 3.2-3.3 billion in FY 2021 (previously: “comfortably exceed EUR 3.0 billion”) with total growth expected within a range of 22-25% (previously: ~17%) compared with FY 2020.
Adjusted EBITDA is expected to exceed EUR 925 million in FY 2021 (new guidance), compared with EUR 679 million in FY 2020.
Unlevered free cash flow (pre-M&A) is expected to exceed EUR 500 million in FY 2021 (previously: EUR 300-350 million) compared with EUR 272 million in FY 2020.
H2 2021 dynamics
After recording sustained strong SARS-CoV-2 testing contribution in H1 2021, which was above expectations, SYNLAB based its revised FY 2021 outlook on the assumption of a gradual reduction of SARS-CoV-2 testing from peak levels in H2 2021. However, should recent trends continue, notably driven by the impact of variants, SYNLAB’s revenue and total growth are likely to exceed their respective guidance ranges.
Strong SARS-CoV-2 testing performance notwithstanding, SYNLAB will continue to keep a strong focus on underlying organic growth development and M&A execution.
Mid-term financial outlook
Over the mid-term, SYNLAB aims at maintaining its growth profile, targeting around 10% total annual growth from revenue levels of 2019, including organic revenue growth above 3% per year, and targeting an adjusted EBITDA Margin of around 23%.
Over the mid-term, SYNLAB also targets average annual M&A spending of approximately EUR 200 million.
SYNLAB is also targeting a leverage ratio of net financial debt to adjusted EBITDA from continuing Operations below 3.0x on a sustainable basis over the mid-term.
For more information:
– SYNLAB Group is a leading international medical diagnostics provider and offers a full range of innovative and reliable medical diagnostics for patients, practising doctors, clinics and the pharmaceutical industry.
– Providing the leading level of service within the industry, SYNLAB is the partner of choice for diagnostics in human and veterinary medicine. The Group continuously innovates medical diagnostic services for the benefit of patients and customers.
– SYNLAB operates in 36 countries across four continents and holds leading positions in most markets. More than 20,000 employees, including over 1,200 medical experts, as well as a large number of other specialists such as biologists, chemists and laboratory technicians, contribute every day to the Group’s worldwide success. SYNLAB carries out ~500 million laboratory tests per year and achieved revenues of EUR 2.6 billion in 2020.
– More information can be found on www.synlab.com
This document does not constitute or form a part of, and should not be construed as, an offer for sale or subscription of or solicitation of any offer to purchase or subscribe for any securities in any jurisdiction.
SYNLAB full set of non-audited financials is available in the H1 2021 report published today and accessible here.
I. ALTERNATIVE PERFORMANCE MEASURES
This announcement includes certain financial measures that are not presented in accordance with IFRS or any other internationally accepted accounting principles.
Organic growth is a non-IFRS measure calculating the growth in revenue for a given period compared to the comparable period of the prior year for the same scope of businesses, excluding discontinued operations, and in constant currency, i.e. using the exchange rates of the prior year reported period.
When calculating organic growth, SYNLAB uses the scope of businesses that have been consolidated in the Group’s financial statement of the previous financial year. Revenue contribution from businesses acquired in the course of prior year but not consolidated for the full year are adjusted as if they had been consolidated as from January of prior year. All revenues from businesses acquired since 1 January of the current year are excluded from the calculation.
Adjusted EBITDA (AEBITDA) is operating profit adjusted for (by adding-back) depreciation and amortization, impairment of goodwill, expenses for restructuring and other significant items, acquisition related expenses, as well as other items of non-recurring nature included in operating costs (i.e. solely share-based payments in 2020).
LTM pro-forma adjusted EBITDA is adjusted EBITDA pro-forma for all acquisitions carried out over the last twelve months.
Adjusted operating profit (AOP) is operating profit adjusted for customer list amortization, impairment of goodwill, expenses for restructuring and other significant items, acquisition related expenses, other items of non-recurring nature included in operating costs (i.e. solely share-based payments in 2020).
Adjusted net profit is defined as profit (Group share) adjusted for adjustment items (see adjusted operating profit definition) and for the tax effect on adjustment items.
Adjusted net debt is defined as sum of financial debt including loans and borrowings (adding back capitalized transactions costs) and lease liabilities, net of cash & cash equivalents.
Unlevered free cash flow pre-M&A (uFCF) is defined as the sum of cash flow from operating activities of continuing operations, net CAPEX (defined as the cash outflow from purchase of intangibles and property, plant and equipment, net of proceeds from sale of intangibles and property, plant and equipment) and leases (defined as the sum of lease repayments and lease interest).
Return on capital employed is defined as last twelve months AOP after tax (using a normalized tax rate of 28%) on capital employed (defined as the sum of goodwill, net fixed assets and net working capital), adjusted for rights of use assets and deferred tax.
II. Q2/H1 2021 SEGMENT REPORTING
III. KEY FINANCIALS
 ATTRITION IMPACT ON REVENUE FROM CONFINEMENT MEASURES, SUCH AS CLOSURES OF BLOOD COLLECTION POINTS OR PATIENTS DELAYING NON-CRITICAL MEDICAL CARE, THAT RESULTED IN TEMPORARY DECREASES IN ORDINARY TESTING VOLUMES
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