Euroapi S.A. (EAPI) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Euroapi 2026 Half Year Results Presentation. This call will be structured in 2 parts. First, a presentation by the Euroapi Group management team represented by David Seignolle, CEO; and Olivier Falut, CFO. Afterwards, there will be a Q&A session. [Operator Instructions] I will now hand over the call to David Seignolle to begin.

If we can move to the following slides. Thank you. So before we begin, I would like to mention that our Head of Investor Relations, Sophie Palliez, is unfortunately unable to join us today due to personal reasons, and we wish her well. Let me now begin with a snapshot of our first half performance before Olivier takes you through the financial results in more detail. In the first half of 2026, Euroapi generated net sales of EUR 356 million. Core EBITDA amounted to EUR 20.7 million, representing a 5.8% margin while EBITDA was negative EUR 43.1 million, reflecting the nonrecurring costs associated with the continued execution of FOCUS-27. We maintain a disciplined investment approach with EUR 39.1 million of CapEx, nearly 2/3 of which were dedicated to growth and performance projects. Finally, we ended the first half with a net debt position of EUR 37.9 million, reflecting both our investment program and the expected evolution of working capital during the period. Beyond these headline figures, I believe there are 3 key takeaways from the first half. The first message is that our transformation continues to progress on schedule despite a challenging business environment. As expected, our sales were impacted by the continued evolution of our portfolio towards more differentiated and higher value-added products. The planned discontinuation of nondifferentiated API represented a negative impact of around EUR 13 million during the first half. At the same time, we continued to see softer demand in certain product categories, which weighed on manufacturing activity. The second message is that we remain fully focused on the levers we control. Lower production volumes naturally impacted our industrial performance. However, we continued to improve our cost efficiency through disciplined execution of FOCUS-27. We further reduced our sales and general expenses and continue to strengthen our cost base across the organization. While these efforts could not fully offset the lower level of activity during the first half, they demonstrate that the transformation is delivering tangible operational improvements. Finally, FOCUS-27 continued to deliver important milestones. During the first half, we continued to optimize our manufacturing footprint while maintaining a disciplined investment strategy. We also reached an important milestone with the signing of the agreement to divest our Brindisi site. At the same time, we streamlined our operations in Germany and in France to adapt to the new demand. More importantly, as we prepare for future growth, we have started to adapt our commercial organization to our longer-term ambitions. Overall, despite a difficult market environment, we continue to simplify the company, strengthen its operational foundations and progressively sharpen Euroapi's competitive positioning. With that, let me hand over to Olivier, who will walk you through our financial performance in more details.

We will start the review of the consolidated accounts with the evolution of net sales. As mentioned, total sales reached EUR 356.5 million, down 13.5% compared to the same period last year. The perimeter impact related to the Haverhill divestment at the end of June 2025. On a comparable basis, meaning at constant exchange rate and perimeter, sales were down by 11.8% versus previous period reflecting notably the impact of the discontinued product. Before taking a closer look at the net sales per activity, let me first highlight the prior year figures of API solutions to Sanofi have been restated to reflect the reclassification of Opella sales from Sanofi to other clients, following the exchange of Opella's majority shareholder. This adjustment ensures a like-for-like comparison of our commercial performance across the 2 periods. With that being said, API solutions to Sanofi decreased by 36.2% due to an unfavorable comparison base related to the divestment of Haverhill. Excluding Haverhill, sales would have declined by 28.4%. The remaining decline reflects mainly product discontinuations which has an estimated negative impact of around EUR 13 million on the first half sales. API solutions to other clients decreased by 11% notably due to the weaker demand of corticosteroids and complex molecules in Frankfurt. Total CDMO sales increased by 2%, of which 13.8% increase for Sanofi and a decrease of 8.2% for other customers. Consistent with FOCUS-27, the commercial phase projects represent 94% of the total CDMO sales of H1, up 11.5% compared to the previous year. Sales were impacted by a one-off impact related to the discontinuation of a project of large molecules. Excluding this impact, H1 CDMO sales -- CMO sales would have increased by 8% and supported by the development of projects with Sanofi such as PLLA. Now turning to the core EBITDA evolution. H1 2026 core EBITDA reached EUR 20.7 million for a margin of 5.8%, down by 9.6% in H1 2025. The evolution in core EBITDA margin was driven by the following elements. Despite a lower level of net sales versus previous year, volume, price and mix impact contributed positively to the core EBITDA margin. Volume impact for 1.8 percentage points, price and mix contributed for 1.1 percentage points. Industrial efficiencies led to a loss of 5.9 percentage points in core EBITDA margin due to the lower fixed cost absorption in Frankfurt and Elbeuf. Energy and raw materials increased by margin -- increased the margin by 0.3 percentage points. Foreign exchange impact linked to the recent appreciation of Hungarian forint has negatively impacted our local cost base and explained a loss of 0.6 percentage point of core EBITDA. OpEx including R&D weighed 0.3 percentage points. Excluding lower R&D cost absorption following the lower CDMO activity, OpEx would have favorably contributed to the core EBITDA margin by 0.9 percentage point. Last, Brindisi weighed 0.2 percentage point on 2026 core EBITDA margin, while the divestment of Haverhill allowed to gain from last year 0.5 percentage points. Moving to Slide 10 now. Total nonrecurring items restated from the core EBITDA were of EUR 63.8 million in H1 2026. We recorded EUR 11.1 million of idle costs compared to EUR 20.6 million in H1 2025. We also recognized EUR 10.1 million of external and internal costs related to the transformation of the company. Finally, employee-related expenses to EUR 42.5 million compared to only EUR 12.4 million in H1 2025. This mainly reflected a one-off linked to the Frankfurt site redundancy plan. Consequently, employees-related expenses are expected to be materially lower in H2 2026 than H1. H1 2026 EBITDA was a negative EUR 43.1 million compared to EUR 5 million positive in H1 2025. Looking now at items below EBITDA on Slide 11. Operating income amounted to negative EUR 135.7 million in H1 2026, compared to a negative EUR 27.8 million in 2025 and included EUR 92.6 million impact from depreciation and amortization, of which EUR 33 million of impairment. This impairment was triggered by the revision of midterm customer demand for certain small molecule manufactured in Frankfurt and also the impact of the divestment of Brindisi based on the agreement signed with Huvepharma on July 29, 2026. As we move below operating income, net financial expenses were EUR 3.4 million in H1 2026 and income tax negative EUR 2.4 million. Taken together, these items resulted in net loss of EUR 141.5 million in H1 2026, in comparison to a loss of EUR 28.5 million in H1 2025. Moving to the CapEx now. Concerning our investing activities, CapEx reached EUR 39.1 million in H1 2026, which represents 11% of total H1 net sales. 64% of the CapEx was dedicated to growth and performance. Full year 2026 CapEx is expected to be in line with the group objective of approximately 9% -- sorry, 8% of the net sales. Finally, if we look at our net debt evolution on Page 13. We ended H1 2026 with a net debt position of EUR 37.9 million compared with EUR 68.2 million of net cash position at the end 2025. The EUR 42.7 million increase in inventory was driven by higher volume, reflecting sales phasing to H2 and by the impact of the insourcing of the production of an intermediate previously produced by Sanofi as part of a CMO contract. Factored receivables amounting to EUR 17.6 million at the end of June 2026. H1 2026, other current assets and liabilities include IT and insurance deferred expenses. As a reminder, H1 2025 other current assets and liabilities included EUR 18 million paid by Sanofi to secure available capacity as part of the financing of FOCUS-27. To conclude this review of our H1 2026 consolidated results. I will now hand back to David. Thank you.

Thank you, Olivier. Let me conclude with our outlook for 2026. The external environment remains challenging, but our operational priorities have not changed. Can you move to the next slide, please? There you go. We will continue to execute FOCUS-27 with discipline, maintain strict cost control and focus our investments on projects that support the long-term development of the company. Despite an increasingly challenging business environment, our revenue expectations remain unchanged. We continue to expect full year net sales to be in line with our initial outlook with sales expected down around 10% on a comparative basis versus 2025. However, since the beginning of the year, the appreciation of the Hungarian forint has significantly increased our local cost base. Although the operational improvements generated by our transformation continued to deliver benefits, they are expected to be more than offset this year by the adverse foreign exchange impact, which should weigh by approximately EUR 9 million on our full year core EBITDA. As a consequence, we now expect our full year core EBITDA margin to be around 6% at constant perimeter. This is at 2025 perimeter and does not take into account the impact of the deconsolidation of Brindisi sales and core EBITDA before the end of the year. We will provide an impact after the closing. Looking ahead, cost discipline will remain an important part of the equation. However, the next chapter for Euroapi will also be about commercial execution. We are strengthening our commercial capabilities, sharpening our value proposition and deepening our engagement with customers. Together, these efforts will progressively restore growth, sharpen and strengthen Euroapi's competitive positioning and lay the foundation for the company's next phase of development. Thank you for your attention. Olivier and I are now happy to take your questions. Operator?

[Operator Instructions] The next question comes from Fynn Scherzler from Deutsche Bank AG.

We can have the other question, operator.

We can start with the questions that we received actually on the chat from Martial Descoutures from ODDO BHF. So how much of the API solutions' weakness do you consider temporary versus structural? Do you expect customer demand to improve in 2027? Or should we continue to assume a challenging market environment?

So Martial, thank you for your question. The -- this is actually an interesting question. And we don't have a very, let's say, black and white answer throughout the portfolio. What we see right now is we see structural change in the demand across some molecules which are highly commoditized by now, and these would be simple, small molecules similar to the ones we have previously stopped in Frankfurt and we see some continued momentum. And we have planned to actually see this reduction unfolds in the next couple of years. On the other hand, what we see is some demand where we believe it is simply temporary. There has been a significant stocking effect at our customers post-COVID. But 5 years down the road, we see significant efforts of reducing the inventory of -- at our customers. And therefore, we see temporary measures of reduced demand, which we see for this year and maybe a bit of 2027. So on some of the molecules, we will see this as a temporary solution. And in others, thankfully, there are a couple of products where we see demand still strong. And that's why we are continuing to invest on our capacity increase or performance improvement to improve the yield and increase throughput.

We have a second question from Martial. CDMO performed better than expected in H1. Should we expect this momentum to continue into H2 and 2027?

We are actually seeing some interesting momentum building in CDMO. We have recently hired new folks coming from the CDMO space with interesting background, whether they are technical, commercial, operational and mixing all that up and being able to address the customers and understand their needs. So will this -- I mean, is this all the impact that they're having and seeing some momentum? No, but it's definitely helping to seize those opportunities. It's important to note that we have continuously been receiving RFPs for a while. We have understood why we were not necessarily winning all of those. There are some that we know we will never win, but there are some that we need to make sure we are successful throughout this process. So I'm very much encouraged to see some long-term programs with top-tier pharma companies. I'm -- for which we are starting and we have started for a while now to progress on CDMO, and we are seeing the second or third steps of their programs. I'm very pleased to see that we are seeing significant RFPs from other big tier pharma companies, which are -- hopefully, we will start later on this year and progress through next year. We see continued success of new programs with other customers for the years to come. So indeed, there is some continued success here, and I appreciate you noted it. The other element is -- which is new is we are also seeing a new type of demand for CDMO, which is around the fermentation capabilities that we have. The loss of the B12 volumes over the last years have left some fermentation capacity idle and available and we're starting to market that. And this capacity is triggering some interest. Now it is our efforts to understand how we match the available capacity and equipment to the demand and process that potential customers would need. But hopefully, we are able to bring future volumes in our Elbeuf sites in the years to come as well.

We have a question from [ Matthew Locher ] from Portzamparc. You mentioned commercial organization improvement. What does that mean exactly? Do you have concrete elements, please?

Yes. So I think we all understand that -- and we are the first one to do so that our commercial performance in the recent years has not been where it needs to be, I think probably due to a combination of external factors, and these are easy to spot out and to lay ourselves on, but market headwinds, increased competitive pressure notably from Asia et cetera. But certainly, also from internal factors. We have an aging portfolio. We mentioned these highly commoditized APIs a couple of minutes ago, high costs in some areas, suboptimal commercial practices, et cetera, et cetera. And that's why to address those, we have appointed a new Head of Commercial with Frédéric Robert joining us about a year ago with a strong industry experience where he spent all his life working in commercial organization in pharma. So our objective in the short term is to obviously capture more opportunities across the business by strengthening customer engagement, increasing our presence in the field spending more time with our customers to better understand their needs and future projects. At the same time, I think we are focusing on improving our opportunity conversion and building a more performance-driven commercial organization. We have reorganized the regions. We have brought in some new talents throughout organization. We have built a new marketing organization to try to gather all the good bits and pieces that were existing across the organization and taking that to a different level, trying to do what should have been done and trying to meet commercial best practices to, at the end, add -- or increase our value proposition. And in parallel to that, obviously, it's not purely a commercial effort, but all the discipline and rigor we are putting on cost are helping to address competitiveness and in the long term. So we are also looking at improving our value proposition, improving our portfolio, CDMO offering, et cetera, et cetera.

We have a couple of questions on the Brindisi site, the sale of the Brindisi site. The first one comes from Grit Mühlner from Deutsche Bank. Grit Mühlner would like to know how it fits in the overall FOCUS-27 framework plan? And what kind of milestone does it represent? And also, could you provide an update on the closure costs, in particular, in comparison with -- to the costs that were planned initially in the FOCUS-27 plan at the time of the agreement of the last amend-and-extend agreement. Thank you.

Thank you, Grit, for the question. I'll start with the original FOCUS plan and the time lines. And then Olivier, please add on all the cost elements. So when we built FOCUS-27, we decided to refocus our network on those 4 sites and divest Haverhill and Brindisi. At that time, we said we will engage in those divestments, but the target we had in mind was to ensure we had divested those sites no later than the end of the plan, which is end of 2027. So we are very happy to be able to have progressed Haverhill relatively quickly about 1 year ago and that we have found an agreement with Huvepharma on the way forward with Brindisi. The signing has happened yesterday. We expect the closing to happen in the next couple of months. You know that there are specific regulations with regards to Italy that we cannot we cannot -- we have to deal with. But hopefully, we will close that quickly because the buyer also has interesting plans and wants to move quickly. So I think it's in everyone's interest to progress that faster. And that's about the time line. Olivier, do you want to answer a bit about the costs?

Yes. About the cost, clearly, we committed with Huvepharma to support the site toward a 2 years' transformation period. And during this period of 2 years, we will help in terms of operation, in terms of CapEx and in terms of transformation of the site for a total amount of EUR 60 million, that's the total -- the cost we will support the site for the next 2 years.

We have another question on Brindisi, Clément Bassat from Portzamparc has the following question. So you expect to pay EUR 30 million to the buyer at the end of 2026 followed by EUR 15 million in each of '27 and '28. Are there no revenues expected from the site over that period?