DGAP-News: SYNLAB AG / Key word(s): Quarter Results SYNLAB delivers strong 9M 2021 results, on track to significantly exceed 2021 financial targets set at IPO 2021-11-10 / 07:29 The issuer is solely responsible for the content of this announcement.

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- Strong revenue growth delivered since the beginning of the year

- +20% revenue growth in Q3 2021

- +64% in 9M 2021

- +3.5% underlying growth in 9M 2021 driven by For You initiatives

- Profitability uplift driven by volume leverage

- Q3 2021 margin remained elevated post H1 2021 peak

- 32.8% adjusted EBITDA margin in 9M 2021

- Extra cash generation with capacity to accelerate growth plans

- EUR 630 million unlevered free cash flow in 9M 2021

- Leverage ratio at 1.3x by end of September

- 18 acquisitions completed; full-year M&A target spend of EUR 200 million already exceeded

- 2021 financial guidance (adjusted slightly upward today) materially higher than IPO targets

- 2022 outlook showing further material upside vs. pre COVID-19 period (+50% revenue vs. 2019)

SYNLAB, (ISIN: DE000A2TSL71, SYMBOL: SYAB) the largest European clinical laboratory and medical diagnostic services company, announces its unaudited consolidated Q3/9M results.

"At the end of the third quarter of 2021, our results are already significantly above the results for the full year 2020. We are therefore in a position to significantly exceed the 2021 targets set at IPO. This major outperformance is driven by consistent execution of our growth agenda. We are progressing on our "For You" growth initiatives, notably around retail and prescribers. We have made further inroads into the hospital market thanks to our leadership position in Specialty testing. And we have accelerated on our M&A roadmap. Meanwhile, the COVID-19 activity is reducing from peak levels but remains at elevated levels, thanks to our unmatched geographic breadth. In addition to giving us significantly increased financial capacity to accelerate our development, this very strong start as a public company evidences our strong execution and transformation capabilities for the future." says Mathieu Floreani, CEO of SYNLAB Group. 


SYNLAB Key figures (EURm)            Q3 2021 YoY Growth 9M 2021 YoY Growth 
Revenue                             849.3     +20%    2,772.3    +64% 
Operating profit                    173.8    x21.5     689.1     x8.6 
Net profit (Group share)            128.0    +200m     471.3    +565m 
 
Adjusted EBITDA                     245.3     x1.3     908.0     x2.4 
Adjusted operating profit (AOP)     192.1     x1.3     761.4     x3.0 
Adjusted net profit (Group share)   143.3     +83m     514.9    +447m 
 
Unlevered free cash flow             202     +151m     630.2    +570m

Financial highlights

Strong revenue growth delivered since the beginning of the year

SYNLAB delivered another quarter of strong growth in Q3 2021, with revenue up 20% to EUR 849 million.

The growth contributions of COVID-19 testing and underlying activity were more balanced during the quarter:

- SYNLAB continued to enjoy growth in its COVID-19 testing activity, despite an increasingly high comparison base, with a net revenue contribution of EUR 307 million^[1] (Q3 2020: EUR 236 million). The attrition^[2] impact measured in the quarter was EUR 5 million in specific countries of the North & East and South segments. SYNLAB performed 6.3 million PCR tests in the quarter, at an average price per test of EUR 44;

- underlying growth (excludes both COVID-19 testing revenue contribution and the positive impact of lower attrition) accelerated again in Q3 2021 to reach 12.2%. This growth momentum was mainly attributable to the strong execution of the South-East London (SEL) hospital outsourcing contract.

9M 2021 revenue was up 64% to EUR 2,772 million (9M 2020: EUR 1,691 million), demonstrating SYNLAB's ability to combine both leadership in the COVID-19 response and good execution of its underlying growth strategy:

- the net revenue contribution from COVID-19 was EUR 1,137 million^[3] during the 9 months to September 2021, with SYNLAB performing 20.8 million PCR and 3.5 million non-PCR tests during the period;

- underlying growth was 9.1%: SYNLAB was able to deliver underlying organic growth over 3% each quarter since the beginning of the year, notably thanks to the "For You" growth initiatives. In the last two quarters, growth was further supported by the contribution of SEL.

Volume growth strongly improved profitability

In Q3 2021, SYNLAB adjusted EBITDA reached EUR 245 million with margin expanding by 1.8 percentage points compared to Q3 2020, at 28.9%. Incremental volumes from COVID-19 testing on a relatively fixed cost base was the main driver for the margin uplift. However, the Q3 2021 margin uplift is lower than in H1 2021, reflecting the gradual COVID-19 volume and price reductions.

For 9M 2021 adjusted EBITDA was EUR 908 million and the margin 32.8%, an increase of 10.1 percentage points compared to 9M 2020 reflecting the record growth experienced during the first 9 months of the year.

Margins have further benefited from productivity and procurement savings related to the SALIX program (EUR 15 million in 9M 2021), as well as procurement efficiencies for PCR test reagents and strict management of personnel and other OPEX costs.

Net profit at all-time high

Adjusted operating profit reached EUR 761 million at the end of September 2021 (EUR 257 million in 9M 2020). Post adjustments, which were mainly comprised of customer relationship amortization, IPO-related costs and acquisitions-related costs, operating profit was EUR 689 million (EUR 80 million in 9M 2020).

The key bridge items from operating profit to net profit were:

- a EUR 87 million net financial expense, improving by EUR 56 million compared to 9M 2020. This major decrease came from a combination of lower borrowings and lower borrowing costs. The SYNLAB average cost of borrowing was 2.5% in Q3 2021, compared with 4.7% in Q3 2020;

- a EUR 145 million tax expense (EUR 36 million in 9M 2020). The effective tax rate was 24% for the period, lower than the 28% normalized rate due to the use of tax attributes carried forward;

- a EUR 17.9 million positive impact from a residual sale of the A&S business in Q1 2021, classified as discontinued operations.

Net profit (Group share) reached EUR 471 million (EUR (94) million in 9M 2020), and basic earnings per share were up at EUR 2.22^[4].

Record cash flow generation

Operating cash flow from continuing operations expanded materially, to EUR 786 million at the end of 9M 2021, driven by profit growth. The negative impact of COVID-19 testing activity on working capital has materially reduced over the past quarters, with inventory going down and DSOs normalizing to 57 days at the end of 9M 2021, compared with 80 days at the end of 9M 2020.

Total CAPEX (including leases and related interest payments) was EUR 156 million in 9M 2021 (EUR 132 million in 9M 2020) representing 5.6% of 9M 2021 revenue (7.8% in 9M 2020). It included EUR 9 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 630 million in 9M 2021. The cash conversion ratio (unlevered free cash flow / adjusted EBITDA) was 69%.

Strong balance sheet

At the end of September 2021, the adjusted net debt stood at EUR 1,513 million compared with EUR 2,254 million at the end of December 2020. The leverage ratio^[5] was at 1.3x compared with 3.3x at the end of 2020, the lowest level since the creation of the SYNLAB Group, attributable to the EUR 394 million of net proceeds from its successful IPO and the strong cash generation since the beginning of the year.

In Q3 2021, SYNLAB decided to prepay EUR 150 million of loans due in 2026. A further repayment of EUR 75 million was successfully completed on 28 October 2021.

Exceeding EUR 200 million of M&A spend in 2021

Since the beginning of the year, SYNLAB has completed 18 acquisitions for a total enterprise value of about EUR 250 million. These acquisitions represent additional annualized revenue of around EUR 113 million or 5.5% growth of the base business^[6]. In addition to the 10 acquisitions completed in H1 2021, SYNLAB closed 3 acquisitions in Q3 2021 and 5 more since the beginning of Q4, four of which are located in the South region and one in France.

Most of them were bolt-on acquisitions, with SYNLAB also completing two mid-sized deals in Italy and Mexico:

- Gruppo Tronchet (EUR 22 million revenue in 2020), a strong regional player to strengthen SYNLAB's number one position in Italy with 17 patient-centric healthcare centers in and around Bologna.

- Laboratorio Médico Polanco -LMP- and Laboratorio Clinicos de Puebla -LCR- (EUR 55 million revenue in 2020), a top 4 player in Mexico (100 diagnostic service points and 1,700 skilled employees) as a platform to further consolidate the Mexico and Latam markets.

The pipeline for future acquisitions is strong and diversified, and SYNLAB keeps a very disciplined acquisition approach.

Segment review

France (23% of 9M Group revenue)

In Q3 2021 SYNLAB recorded total revenue growth of 5.8% including strong underlying organic growth of 3.4%. Solid volume growth and a positive working-day effect more than offset the price decrease as per the 3-year agreement with the French health authorities, implemented in Q2 2021. COVID-19 testing contribution declined sequentially, due to volume reduction and the gradual price decrease but was broadly stable compared to Q3 2020. In addition to the normal testing activity, SYNLAB remained highly mobilized on school testing.

After a strong start to the year, M&A activity reduced over the period due to SYNLAB's selective approach with a primary focus on small bolt-on acquisitions.

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November 10, 2021 01:29 ET (06:29 GMT)