SYNLAB delivers record growth in Q1 2021
DGAP-News: SYNLAB AG
/ Key word(s): Quarter Results
SYNLAB delivers record growth in Q1 2021
- Nearly doubling revenue (+96%) in Q1'21 at EUR 938 million
- Strong SARS-CoV-2 testing volumes in Q1'21, above Q4'20
- Sustained underlying organic growth at +3.7% supported by successful "For You" growth initiatives
- Adjusted EBITDA multiplied by 3.8x at EUR 324 million, margin showing strong volume leverage
- Record unlevered FCF of EUR 182 million driving major leverage ratio reduction at 2.3x, pre-IPO
- M&A activity resuming, with 10 acquisitions completed year-to-date (~EUR 44 million of EV)
- Successful IPO, with EUR 400 million raised to further reduce leverage
- SYNLAB to comfortably exceed EUR 3 billion of revenue in FY 2021
SYNLAB, (ISIN: DE000A2TSL71, SYMBOL: SYAB) the largest European clinical laboratory and medical diagnostic services company, announces SYNLAB Limited's unaudited consolidated (SYNLAB Group) Q1 results.
"Strong business momentum from late 2020 has continued and even accelerated in the first quarter of 2021. We recorded sustained growth in our underlying business, in line with previous quarters, while continuously playing a leadership role in the COVID-19 response, with testing volumes in March 2021 at the highest levels since the start of the pandemic. Less than two weeks after our successful IPO, these results give us great confidence that we should comfortably exceed EUR 3 billion of revenue in FY 2021, giving us increased means to implement our strategy for further profitable growth. I am equally proud of the major progress SYNLAB has made in its Environmental, Social and Governance agenda, with the publication in March of our first ESG report, which also sets measurable targets for our extra-financial performance." says Mathieu Floreani, CEO of SYNLAB Group.
SYNLAB Group Key figures (€m)
Financial update: strong profitable growth in Q1 2021
Q1 2021 revenues increased by 96% compared with Q1 2020 at EUR 938.2 million. This record growth was established against a comparison base which included a very strong March 2020 SARS-CoV-2 attrition impact in several geographies (total Q1 2020 attrition impact of EUR 46 million), partly mitigated by the strong start to the year (+4.9% underlying organic growth in Jan.-Feb. 2020) and the early ramp-up of SARS-CoV-2 testing capabilities in several countries.
Q1 2021 organic growth was 96% with:
- high demand for SARS-CoV-2 diagnostics across markets, with Q1 2021 volumes exceeding that of Q4 2020. March 2021 testing volumes were at the highest level since the start of the pandemic. SYNLAB carried out 7.1 million PCR tests and 0.8 million non-PCR tests in Q1 2021, for an estimated SARS-CoV-2 revenue contribution of ~EUR 406 million, of which EUR 430 million from testing revenue and an estimated EUR 24 million attrition impact;
- robust underlying organic growth of 3.7% (excluding SARS-CoV-2 revenue contribution), supported by successful "For You" growth initiatives (Blood collection points network optimization, Hospitals) and positive price in multiple countries;
Excluding SARS-CoV-2 testing, total organic growth was 8.7%.
Currency variations had a small negative impact in Q1 2021, driven by further weakening of emerging currencies against the Euro. M&A had a small positive contribution, reflecting subdued M&A activity in previous quarters.
Q1 2021 adjusted EBITDA rose to EUR 324.1 million compared with EUR 85.0 million in Q1 2020. The EUR 239.5 million organic increase in adjusted EBITDA was mostly driven by i) a surge in volume and overall positive pricing ii) contained inflation of personnel and other OPEX costs and iii) productivity gains related to the SALIX program, in line with previous quarters and annual targets.
The strong volume leverage translated into adjusted EBITDA margin expansion, at 34.5%, increasing materially from 17.7% in Q1 2020 but also higher than the 31.8% EBITDA margin recorded in Q4 2020.
Q1 2021 adjusted operating profit was multiplied by 6.2x to reach EUR 280.3 million, with margin expanding materially. Operating profit grew by the same amount, with slightly lower customer list amortization at EUR 12.4 million offset by slightly higher OPEX adjustments -mostly IPO and acquisition-related- at EUR 9.7 million. Total adjustments reduced materially as a % of adjusted EBITDA.
Q1 2021 net profit reached EUR 188.8 million, driven by higher operating profit and lower financial costs, partly offset by higher income tax from improved financial performance. A residual sale of the A&S business, classified as discontinued operations, had a positive EUR 17.9 million impact on net profit.
Operating cash flow expanded materially in the quarter, driven by profit growth and despite the negative impact of SARS-CoV-2 testing activity on working capital. DSOs stood at 73 days at the end of Q1 2021, compared with 56 days at the end of Q1 2020 (and 77 days at end December 2020).
A moderate increase in net CAPEX, of which EUR 3.6 million related to SARS-CoV-2 testing, and in Lease payments, together representing 5.3% of Q1 2021 revenue, resulted in record unlevered free cash flow of EUR 181.8 million. The cash conversion ratio (Unlevered free cash flow / adjusted EBITDA) was 56%.
Q1 2021 strong cash generation enabled SYNLAB to deleverage organically: at end March 2021, its adjusted net debt stood at EUR 2,127 million compared with EUR 2,254 million at end December 2020. Net debt to LTM pro-forma adjusted EBITDA leverage ratio dropped to 2.3x compared with 3.3x at the end of 2020, the lowest level achieved since the creation of the SYNLAB Group.
Successful IPO completed on the Frankfurt Stock Exchange
On 30 April 2021 SYNLAB was successfully listed on the Frankfurt Stock exchange. The Offering comprised 22.2 million newly issued ordinary shares from a capital increase, and up to 20.7 million ordinary shares from the Pre-IPO shareholders. The total offer volume was EUR 772 million (assuming full exercise of the Greenshoe option), including gross primary proceeds of EUR 400 million used to further deleverage the Group and pursue its value enhancing growth strategy.
Refinancing and further debt reduction post Q1 2021
Capitalizing on its strengthened financial position, SYNLAB issued on 4 May 2021 a new EUR 735 million Term-Loan with a 5-year maturity, a new EUR 500 million RCF, and cancelled its undrawn EUR 250 million RCF. On 5 May 2021, using the proceeds from the new issuance and the IPO, SYNLAB repaid EUR 850 million of outstanding Notes and EUR 300 million of Term-Loans. Following these successful transactions, SYNLAB significantly reduces its debt level, has no debt maturity before 2026, benefits from lower interest rates, in line with guidance given at the IPO, and further diversifies its pool of banking partners.
Business update: delivering on growth strategy
Leadership in SARS-CoV-2 pandemic response
SARS-CoV-2 testing continued at a sustained pace in the quarter, with volumes at levels never seen since the start of the pandemic in several countries. The bulk of tests carried out were PCR tests, with antibody testing rising gradually. In addition, SYNLAB's leading capabilities in sequencing put the company at the forefront of the sequencing campaign in Europe, notably in Germany.
In parallel, SARS-CoV-2 testing services are also growing, as testing is also paramount to the "back to normal" phase. The flagship UEFA partnership signed in 2020 and which covers 55 countries is still ongoing, and SYNLAB has signed more than 7,700 "Safe at work" contracts with corporate clients from program launch to end March 2021. SYNLAB sees continuous traction in this market. Recent partnerships include PCR testing services for Amazon in Italy, Radisson hotels across 15 countries, and for athletes of various disciplines (for example FC Barcelona, Hungarian Olympic Committee). SYNLAB is also active in testing of younger people: testing concepts and focused solutions for schools and kids overall are being implemented in several countries, including France, Germany, and Portugal.
Continuously delivering on growth strategy of customer centric medical excellence
In addition to the major efforts put in fighting the SARS-CoV-2 pandemic, SYNLAB continuously delivers on its growth strategy of customer centric medical excellence, based on four pillars:
1) Superior patient and clinician experience
In Q1 2021, mobilization has started for the South-East London contract, which officially started on April 1st, 2021 and is set to generate GBP 1.9 billion of revenue over the next 15 years. Key milestones include the signing of the hub lease and the start of the building work to transform an office building into a 65,000ft2 state-of-the-art laboratory building and associated center of excellence for pathology learning. To manage this major contract, a new executive leadership is now in place with medical leadership appointment also well underway.
Further "For You" growth initiatives were rolled-out in the quarter, including Blood collection points network optimization in France and Italy and the extension of the Net Promoter Score campaign to measure customer satisfaction.
2) Operational excellence
Operational excellence at SYNLAB covers a number of programs. IT is a key enabler, and SYNLAB made important progress in various initiatives in Q1 2021: rollout of LIS solutions is progressing well (for example in France), and the ERP implementation is ongoing as planned in region South and in the UK.
In Q1, SYNLAB has also continued to implement its big modernization program, which aims at renewing more than 1,000 instruments across its labs network in the near future. March was marked by the go live of a fully automated solution in one of its largest labs, located in Augsburg (Germany), which will enable to handle several million tests per year and serve a growing number of customers.
Finally, the SALIX efficiency program enabled EUR 4.5 million of savings, in line with previous quarters and yearly targets.
3) ESG: Employee engagement as a key success factor
In March 2021, SYNLAB published its first ever ESG report. This report is the result of a preliminary materiality assessment started in 2020, reflecting on SYNLAB's most significant ESG risks and opportunities from both the company and its stakeholders' perspectives. SYNLAB's material ESG Topics have 3 main pillars: SYNLAB Green, SYNLAB Care and SYNLAB Citizenship, with clearly defined, measurable targets out to 2025.
Improving the group-wide employee engagement survey -SYNLAB Dialogue- scores year-on-year to 2025, is one of these targets. Results of the 2021 survey were shared with all employees in March and they are very encouraging: participation reached 65% (above 12,000 employees), in 30 countries plus headquarters. The employee engagement score, measured against 3 drivers (Say, Stay, Strive), increased significantly compared with last survey, showing growing employee engagement at SYNLAB.
4) Efficient capital deployment: M&A update (as of 30 April 2021)
M&A activity has resumed since January 2021, with 10 bolt-on acquisitions completed for a total Enterprise Value of c. EUR 44 million, already substantially above the total level of 2020.
SYNLAB further expanded its presence in Italy, with three bolt-on acquisitions in the Lazio region and one in the Napoli region. In addition, three bolt-on acquisitions were closed in France, one in Spain, one in Colombia and one in Germany. With the latter, completed early April, SYNLAB reinforced its presence in the Northern region through the acquisition of a cytology lab.
In the context of the change in legal structure to a German stock corporation (AG), the Company also established a Supervisory Board. It is chaired by Prof. Dr. David Ebsworth. Prof. Ebsworth has over 40 years of experience in the healthcare industry. The Supervisory Board consists of twelve members with six shareholder representatives -of which 4 independent- and six employee representatives.
Outlook: EUR 3 billion revenue to be comfortably exceeded in 2021
SARS-CoV-2 testing assumptions
To date, SYNLAB has seen no slowdown in the monthly run-rate for SARS-CoV-2 testing revenues. SYNLAB anticipates the revenue-enhancing effects of SARS-CoV-2 testing to continue through 2021, with the net revenue-enhancing impact peaking during 2021 and decreasing, but remaining meaningful, in the mid-term.
Q2 2021 outlook
In Q2 2021, SYNLAB expects sustained activity in SARS-CoV-2 testing, underlying organic growth acceleration thanks to the commencement of services for the South East London (SEL) contract, which started on April, 1st 2021, and sustained M&A activity based on its strong pipeline, with 3 acquisitions already closed since 31 March 2021.
FY 2021 outlook
Based on the very strong start to the year which is, as described in the outlook section of the IPO prospectus, above anticipated levels, SYNLAB expects the EUR 3 billion revenue mark to be comfortably exceeded in 2021, with a very material contribution of SARS-CoV-2 testing.
The Group expects underlying organic growth to reach ~10%, enhanced by the full roll-out effects of "For You" growth initiatives and the contribution of the SEL contract.
Based on the 10 acquisitions carried out since the beginning of the year and its strong M&A pipeline, SYNLAB expects its FY 2021 M&A spending to be in line with the EUR 200 million of M&A spending per annum set as mid-term guidance.
Unlevered free cash flow (pre-M&A) is expected to amount to EUR 300 to 350 million.
FRANCE (24% of Group revenue)
France revenue grew by 94% in Q1 2021 at EUR 229 million compared with EUR 118 million in Q1 2020.
Organic growth was 93%, including:
- strong SARS-CoV-2 testing revenue contribution against a Q1 2020 which included a material SARS-CoV-2 attrition impact. SYNLAB recorded further volume growth compared with Q4 2020, with March 2021 testing volumes at the highest level since the start of the pandemic;
- underlying organic growth of 2.2%, including volume growth, positive impact of specific "For You" growth initiatives implemented since Q1 2020 (mainly around BCP network optimization) and stable prices.
Adjusted operating profit stood at EUR 70 million, representing a 30.6% margin (+13.5 pts vs. Q1 2020), reflecting the strong volume leverage of the business.
In Q1 2021, SYNLAB closed three bolt-on acquisitions in France representing total annualized revenue of ~EUR 14 million.
Germany revenue grew by 58%, all organically, in Q1 2021 at EUR 179 million compared with EUR 113 million in Q1 2020 including:
- material SARS-CoV-2 testing revenue contribution, with volumes reducing from Q4 2020 however, due to confinement measures in January and February. Volumes picked up again in March 2021;
- subdued reported underlying organic growth of 0.3%, due to a negative calendar impact (~EUR 2 million) and volume softness in the West region, due to temporary resource constraints. Prices were broadly stable.
Adjusted operating profit stood at EUR 46 million, representing a 25.9% margin (+20.2 pts vs. Q1 2020). This major increase reflects the strong volume leverage of the business.
South revenue grew by 85% in Q1 2021 at EUR 264 million compared with EUR 143 million in Q1 2020.
Organic growth was 84% including:
- material SARS-CoV-2 testing revenue contribution, with further volumes growth compared with Q4 2020;
- underlying organic growth of 5.8%, with all countries recording growth except for Switzerland (13% of SOUTH revenue), which was mainly impacted by the rollover effect of 2020 customer losses, and, to a minor extent, price reduction implemented in December 2020. Other countries experienced volume growth and broadly stable prices and the positive impact of "For You" growth initiatives. Iberia (32% of SOUTH revenue) recorded low single digit underlying organic growth, while LATAM (16% of SOUTH revenue) and Italy (39% of SOUTH revenue) grew mid to high and double digit respectively, with Italy growth also lifted by a very positive working-day effect (+3 working days vs. Q1 2020).
Adjusted operating profit reached EUR 64 million, representing a 24.1% margin (+17.6 pts vs. Q1 2020). Margins were up across the board reflecting the strong volume leverage of the business.
In Q1 2021, SYNLAB closed four bolt-on acquisitions in the South segment, all located in Italy representing total annualized revenue of ~EUR 4 million.
North & East was the fastest growing segment in Q1 2021, with revenue growing 152% at EUR 267 million compared with EUR 106 million in Q1 2020.
Organic growth was 155% including:
- material SARS-CoV-2 testing revenue contribution, with a sharp volume increase compared with Q4 2020. March testing was at the highest level since the start of the pandemic in a number of countries, also benefitting from short-term SARS-CoV-2 testing contracts in North Europe;
- underlying organic growth of 5.0%, driven by volume growth and positive pricing in many countries, further enhanced by specific "For You" growth initiatives. The UK and North (73% of NORTH & EAST revenue) grew slightly above segment growth, with Belgium and the UK clear outperformers in the quarter, thanks to volume growth and "For You" growth initiatives. Central Europe (19% of NORTH & EAST revenue) recorded low single digit growth with mixed performances across countries. Emerging markets (8% of NORTH & EAST revenue) recorded double digit growth.
Adjusted operating profit stood at EUR 100 million, representing a 37.6% margin (+28.6 pts vs. Q1 2020). Strong margin expansion reflected strong volume leverage, with further uplift driven by short-term SARS-CoV-2 testing contracts in North Europe.
For more information:
- SYNLAB Group is a leading international medical diagnostics provider. SYNLAB 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. Around 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.
The financial information disclosed in this press release for SYNLAB or SYNLAB Group relates in each case to the consolidated financial information of SYNLAB Limited. Listed SYNLAB AG did not generate any revenue in Q1 2021 and only became SYNLAB Group's new parent company with the contribution of all shares in SYNLAB Limited on 27 April 2021.
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) the following:
- 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 the following:
- 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 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).
II. Q1 2021 SEGMENT REPORTING
III. 2020 QUARTERLY VIEW BY SEGMENT
IV. OPERATING PROFIT TO ADJUSTED EBITDA AND ADJUSTED OPERATING PROFIT RECONCILIATION (EURM)
VIII. CONSOLIDATED BALANCE SHEET
IX. CONSOLIDATED CASH FLOW STATEMENT
 Excluding estimated revenue growth related to SARS-CoV-2 contribution (testing revenue net of attrition impact)
12.05.2021 Dissemination of a Corporate News, transmitted by DGAP - a service of EQS Group AG.
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