Business Review

Weaker performance in 2022

Revenue lower than expected

PolyPeptide generated EUR 281.0 million in revenue in 2022, representing a decline of 0.4% versus 2021. At constant currency rates, the revenue decline was 3.0%. This revenue development reflects the lower contribution from the coronavirus pandemic-related business and in particular the technical and manufacturing process issues during 2022 communicated earlier. The pandemic-related revenue contribution was EUR 50.7 million in 2022 (EUR 63.2 million in 2021); excluding this contribution in each of the periods, revenue grew by 5.2%.

The commercial launch of two custom projects in 2022 resulted in a material shift of the associated revenue between business areas. Revenue in Custom Projects decreased by 16.1% and increased in Contract Manufacturing by 23.6% versus 2021. In Generics and Cosmetics, revenue increased by 18.3%, reflecting continued efforts to build the Generics portfolio. In 2022, the Group submitted 11 Drug Master Files (DMF) for Generics (Gx) in new markets and 72 new authorizations for customers to reference PolyPeptide’s Gx filings.

PolyPeptide remained strongly committed to supporting the R&D activities of existing and new customers. The custom projects pipeline included 220 active projects at the end of 2022, compared to 196 projects at the end of 2021. In 2022, the Group secured a total of 47 projects, including several oligonucleotide projects, and 25 new clients. The number of projects in phase III of clinical development remained stable at 30 projects, with two phase II projects moving into phase III. Subsequent to the reporting period, one phase III project related to the treatment of cancer was terminated by the customer.

Also reflecting the operational issues during the reporting period, the overall on-time-in-full (OTIF) delivery performance for 2022 was 92%, against 95% in the year before. The net promoter score (NPS) dropped along with this from 75 to 701, which is still considered very strong.

1 Based on interviews with over 100 customers in the context of an annual customer survey conducted by a 3rd party on behalf of PolyPeptide in early 2023, with a scale range from -100 (all detractors) to 100 (all promotors).

Decline in profitability

The gross profit in 2022 was EUR 54.5 million, down 47.5% versus 2021 with a gross margin of 19.4%, down 17.4 ppts. Adjusted EBITDA2 for the year was EUR 38.7 million, down 56.2% versus 2021 with an adjusted EBITDA margin of 13.8%, down 17.5 ppts.

The decline in the adjusted EBITDA was driven by the cumulative effect of several factors, including EUR 20.9 million in higher personnel costs due to the increase in average FTEs by 9.5% versus the end of 2021, mainly in Operations and Quality. Additional operational and maintenance costs of EUR 11.7 million reflected variations from production and delivery schedules, including the operational issues. A decline of EUR 10.8 million was due to inflationary impacts, including wage adjustments. The increase in other costs, including travel, insurance and marketing expenses, amounted to EUR 3.2 million. Lastly, EUR 3.1 million related to adverse product mix effects.

PolyPeptide increased its personnel costs mainly in the first half of 2022 as part of its plans for growth, which did not materialize as expected. In response to the inflationary pressure, the Group began implementing pricing measures throughout the second half of the year to strengthen its financial resilience going forward.

2 For 2022, no adjustments were recognized; adjusted EBITDA for 2021 excludes one-off IPO costs of EUR 5.7 million, partly offset by US government loans of EUR 2.4 million waived in context of the coronavirus pandemic.

The result for the year was EUR 7.8 million, down by 83.6%, after a financial result of EUR -5.0 million (EUR -4.3 million in 2021) and income tax charges of EUR 0.2 million (EUR -12.6 million), reflecting the lower result and tax credits in the US.

Sustained capital deployment

Given the anticipated future volume requirements from the active custom projects pipeline, PolyPeptide continued its infrastructure investments. Capital expenditure for the period increased by 8.3% to EUR 83.0 million or 29.5% of revenue, versus EUR 76.7 million or 27.2% in 2021.

Investment projects in 2022 included the ongoing construction of large-scale solid phase synthesis capacity in Braine-l’Alleud (Belgium), large-scale downstream capacity in Malmö (Sweden) and freeze-drying capacity at several sites. Investments also included further efforts in relation to the implementation of the Group’s green chemistry agenda, the ongoing strengthening of analytical capabilities as well as IT and digitalization efforts.

The return on net operating assets for 2022 decreased to 3.2%, versus 21.0% for 2021, reflecting the lower operating result for 2022, down by 80.4%, and the increase of average net operating assets, up by 30.3%, ahead of planned growth.

Cash flow, changes in net working capital and cash position

2022 net cash flows from operating activities excluding the changes in net working capital were EUR 30.2 million. The net cash flow from the changes in net working capital was EUR -24.7 million, driven by lower contract liabilities and higher inventories, reflecting the anticipated growth as well as higher safety stocks. With cash flows from acquisitions of intangible assets and property, plant, and equipment of EUR -78.8 million, the free cash flow in 2022 amounted to EUR -73.3 million.

Cash and cash equivalents declined to EUR 37.5 million (versus EUR 136.3 million at the end of 2021), also reflecting the purchase of treasury shares and the dividend payment in May 2022 in the form of a cash distribution in the aggregate amount of EUR 23.6 million. With total financial debt of EUR 31.7 million, the net cash position of the Group was EUR 5.8 million at the end of 2022.

Strategy implementation and operational improvements

While the Group did not achieve its targets for growth and profitability in 2022, it continued to implement its integrated growth strategy throughout the year. The accelerated capital deployment program launched in 2021 continued in 2022, bringing the combined capital expenditure to EUR 159.6 million for the two-year period, and leaving the Group well positioned to capture future growth. One focal point for 2023 will be the finalization of the new large-scale solid phase synthesis infrastructure that the Group plans to bring online in Braine-l’Alleud (Belgium) in early 2024.

Following the decision in late 2021 to bring the various quality organizations from the six PolyPeptide manufacturing sites under one leadership, a Group-wide quality plan was approved in early 2022 that defines the priorities and key initiatives for the Group’s quality assurance and quality control functions. The strengthening of the Group-wide processes is also evidenced by the Group’s progress on its ESG agenda, including green chemistry and an inaugural carbon footprint assessment under the greenhouse gas protocol for its European manufacturing sites (see chapter Corporate Responsibility).

In the wake of the technical and manufacturing issues that hindered the Group’s progress in 2022, PolyPeptide is undertaking comprehensive remediation measures. This includes the strengthening of workforce capabilities to instil technical proficiency, operational best practice and rigor, with the support of external experts where needed.

The Group has taken steps to minimize the risk from unforeseen technical failures and launched a program to strengthen operational procedures and controls. This includes Group-wide processes for improved operations planning and execution. By optimizing the utilization of its resources, the Group aims to free up capacity while also enhancing productivity, including improvements to the management of its net working capital.

Beyond that and with a longer-term perspective, the Group plans to accelerate the standardization and integration of its operational processes across sites to leverage its manufacturing footprint to the benefit of customers and to strengthen its resilience in the face of unforeseeable developments.

The Group remains confident in the fundamentals of the peptides market and is experiencing strong customer demand. With production volume requirements growing, the Group continues to invest in its green manufacturing program and aims to continuously develop it commercial relationships.

Organizational development and leadership changes

Within the strategic theme of “OnePolyPeptide”, the Group undertook further steps to harmonize its organization, processes, and systems globally. For example, in May 2022, PolyPeptide announced the appointment of a new Chief Human Resources Officer and member of the PolyPeptide Management Committee, Monika Casanova, to harmonize HR processes, building on existing local practices as the Group aims to further strengthen its processes to hire, onboard, train, reward and develop talent.

In December 2022, PolyPeptide announced the appointment of Jens Fricke as the new Global Director Operations and member of the Executive Committee to support the Group’s growth strategy and operational excellence initiatives. As part of its program to strengthen operational procedures and controls, the Group initiated in early 2023 several organizational changes to strengthen the operational focus and enhance Group-wide coordination.

In January 2023, subsequent to the reporting period, Raymond De Vré, CEO of PolyPeptide Group AG, decided to step down from his position, and Dr. Peter Wilden, Chairman of the Board of Directors, assumed the role of Executive Chairman, supported by Mr. De Vré, who remained available for a smooth transition. The process for the identification and appointment of a new CEO has been launched.

Risk management and internal audit

PolyPeptide is committed to continuously improving the management of risks and opportunities that might arise. In 2022, the Group finalized the implementation of an enterprise risk management (ERM) framework. An ERM report providing a consistent, Group-wide perspective of key identified risks was presented to and approved by the Board of Directors in November 2022. The report addresses the relevant topics to ensure a high delivery performance with a relentless focus on quality, while optimizing and building the capacities to support growth (for a brief description of the ERM Framework, refer to the Corporate Governance Report).

An Internal Audit function was established at PolyPeptide, led by the Head of Internal Audit who joined the Group in October 2022, reporting directly to the Audit and Risk Committee of the Board of Directors (ARC). In 2022, two internal audits were performed with the support of external advisors, and results were presented to the ARC. In 2023, the internal audit activity will focus on areas including the Group’s control environment, as well as operational and financial processes, all aligned with the strategic priorities and the risks identified in the ERM framework.

Guidance for 2023 and dividend

PolyPeptide has confidence in the structural growth opportunities in its market and, more specifically, in the potential of its pipeline of active customer projects. With volume expectations growing significantly for some of these projects, the Group has started to explore with selected customers new commercial models to deploy the required manufacturing capacities in a timely manner.

With the enhancement of its workforce in 2022, the Group increased its fixed costs, and the improvement in profitability in 2023 largely depends on its ability to realize top-line growth. With the time required until the launched remediation measures yield results, the Group expects revenue for the first half of 2023 to be comparable with the previous year, with profitability significantly lower. A marked recovery in revenue and profitability is expected thereafter in the second half.

For the full year of 2023, PolyPeptide currently expects high single-digit percentage revenue growth, with an adjusted EBITDA margin in the mid-teens. Capital expenditure is planned to be around 10% of revenue, lower compared to 2022 (29.5% of revenue) and reflecting the planned completion of the accelerated capital deployment for growth launched in 2021.

The Group aims to provide an update of the mid-term outlook with the announcement of results for the first half of 2023 on 15 August 2023.

With the significant drop in profitability in 2022 and the ongoing efforts needed to restore revenue growth and profitability, PolyPeptide will not be proposing the payment of a dividend to the forthcoming AGM 2023 on 12 April 2023.

This website uses cookies to ensure you get the best experience on our website.Privacy statement