EuroAPI Revision and FOCUS-27 Plan: Divestment of Facilities in Brindisi, Italy and Haverhill, UK in 2027

Sanofi spin-off EuroAPI announced further details on its FOCUS-27 restructuring plan, which includes cutting 550 jobs and divesting two facilities in Brindisi, Italy, and Haverhill, UK, by 2027. The Brindisi site, which paused production in March due to quality control issues, is expected to resume operations in Q3 2024. EuroAPI aims to improve competitiveness with an estimated restructuring cost of €110-120 million and has received expressions of interest for the divested sites.

EuroAPI is advancing its FOCUS-27 plan, targeting €75-80 million annual incremental Core EBITDA by 2027 through portfolio optimization and cost reductions. The plan involves a €350-400 million CAPEX investment, focusing on high-value APIs and strategic sites. Sanofi supports the plan with a €200 million Perpetual Subordinated Hybrid Bond, and discussions are underway to extend the €451 million Revolving Credit Facility. EuroAPI’s streamlined operations will focus on four key sites in France, Hungary, and Germany.

Official Announcement

EUROAPI announces that it has reached an agreement with Sanofi regarding the funding of FOCUS-27 upon the completion of the ongoing discussions with its banks to amend and extend the current Revolving Credit Facility. In addition, following the decision to progressively restart product shipments and production of APIs in Brindisi, the company provides revised full-year 2024 guidance.

Operational roadmap

Revealed in February 2024 following a comprehensive analysis of the company’s operational strengths and weaknesses, FOCUS-27 is a 4-year plan that aims to improve competitiveness and unlock sustainable and profitable growth by refocusing on high-value and growing market segments. 
It is built on four pillars: 

• A streamlined value-added portfolio focused on highly differentiated profitable APIs, particularly Peptides and Oligonucleotides, Prostaglandins, Corticosteroids, Hormones, Vitamin B12, and Opiates. Thirteen APIs will be discontinued in 2026 and 2027. These APIs accounted for approximately 80 million euros in net sales and weighted approximately - 15 million euros on gross margin in 2023. The share of highly differentiated APIs should reach more than 70% of EUROAPI sales in 2027, compared to 57% in 2023.
• A CDMO offer focused on late-stage and high-value complex small molecules and tides supported by unique technological platforms. CDMO should represent approximately more than 1/3 of net sales by 2027.
• A rationalized industrial footprint with four production sites
  • Elbeuf, a unique bio-fermentation platform (Vitamin B12 and anti-infectives)
  • Vertolaye, a multi-purpose site with innovative Corticosteroids, Opiates and Hormones capabilities
  • Budapest, focused on highly potent APIs (Prostaglandins)
  • Frankfurt, right-sized and centered on large molecules (including Peptides and Oligonucleotides).

The footprint rationalization will increase the capacity utilization rate from a current average of 60% to around 80% over the period, which aligns with industry standards. Haverhill (UK) and Brindisi (Italy) manufacturing sites are planned to be divested before the end of the plan. The group has already received expressions of interest. The potential costs of these divestitures, estimated as of today, are embedded in the current financing of the plan.

EUROAPI plans to invest 350 to 400 M€ in CAPEX throughout the plan to pave the way for future growth. These CAPEX will be focused on strategic initiatives, including

• increased capacities for Large Molecules in Frankfurt, for Vitamin B12 in Elbeuf and for Prostaglandins in Budapest
• new capabilities for Corticosteroids, Hormones, and Opiates in Vertolaye
• a steam generation biomass boiler in Elbeuf to reduce CO2 emissions and achieve EUROAPI’s 2030 decarbonation plan

Approximately 59% of total CAPEX will be dedicated to growth or performance.

• A streamlined organization supporting a more efficient and leaner operating model. This organizational transformation will reduce approximately 550 headcounts4 across all functions by 20275 . The company will actively and responsibly support its employees during this transformation.

FOCUS-27 targets to generate 75 to 80 M€ annual run rate incremental Core EBITDA by the end of 20276, driven by the optimization of the product portfolio, increased industrial efficiency, and cost-cutting. Restructuring costs are estimated in the range of 110 to 120 M€ between 2024 and 2027 (excluding the potential costs related to the divestment of Haverhill and Brindisi, estimated as of today, which are embedded in the current financing of the plan).

Short and long-term financing

The implementation of FOCUS-27 will be funded by a combination of financial resources. 

• With the support of the company's mandataire ad hoc, EUROAPI is in advanced discussions with its banks to amend the terms and extend the duration of the 451 M€ Revolving Credit Facility signed in 20227. 
• Upon the completion of these discussions, Sanofi has agreed to support the financing of FOCUS 27 through a 200 M€ Perpetual Subordinated Hybrid Bond. On any interest payment date, and subject to certain conditions, EUROAPI may decide to defer the interest payment related to this bond. This non-dilutive hybrid instrument will be classified as “Equity” in the consolidated financial statements.
• To support the successful execution of FOCUS-27, Sanofi also agreed in principle to reserve minimum available capacities for selected products manufactured by EUROAPI through a 54 M€ payment over the plan.
• In addition to enhanced operational efficiency, FOCUS-27 will be bolstered by stringent cash flow management, including reduced inventories. Between 2024 and 2027, total Working Capital should improve by approximately 140 M€.

The Brindisi site is expected to progressively resume shipments and production during Q3 2024

The investigations launched at the company’s initiative confirmed the existence of malpractices at the local level. Following the effective and reliable remediation plan deployed by the site and the results of the Italian Health Authorities' (AIFA) site inspection, we expect to gradually resume API shipments and production during the third quarter of 2024. 

Full-year 2024 outlook updated to include the impact of the temporary suspension of production in Brindisi

As we continue to focus on putting the company back on track toward sustainable and profitable growth, we now expect: 

• Between 8% and 11% decrease in 2024 Net Sales compared to 2023 on a comparable basis. The second-half performance should exceed that of the first half due to phasing impacts.
• Between 4% and 7% Core EBITDA margin.