Gerresheimer has secured a large inhaler order for Europe from a major international pharma producer. This was based on good performance in supplying the same inhaler to this customer for the North American market from the plant in Peachtree City (Georgia/USA). Following tooling revenues in 2019 and 2020, the Company expects to begin supplying the inhaler under this contract from the fourth quarter of 2020. At full production, revenues from the contract are anticipated of up to EUR 30m a year. To fulfill this order, the Company is going to invest in the Horsovsky Tyn plant in the Czech Republic during the financial years 2019 and 2020.
Furthermore, Gerresheimer has succeeded for the first time in becoming the main supplier to one of the largest heparin producers and is to supply this customer with prefillable syringes under a multi-year contract. This is an outcome of Gerresheimer systematically pursuing its syringes strategy and of ongoing good operational performance in the syringe business. The Company expects revenues from this contract to come on stream in the financial year 2019 and reach up to EUR 20m a year at full production. To generate growth in medical devices and syringes generally, Gerresheimer plans to build a new plant in Eastern Europe for manufacturing medical devices and, possibly, syringes. Automation will also continue to be accelerated across all plants.
In terms of organic base growth, for the financial years 2019 and 2020, Gerresheimer initially expects to grow with the market for products relevant to the Company. This growth is to be increased by one percentage point by means of further improvements in the product mix, to be achieved through a shift toward more high-quality products such as biotech syringes, new innovative developments like Elite Glass, and also cosmetics finishing. In the financial years 2021 and 2022, the above-mentioned major orders-among other things-are then expected to lead to a further two percentage point rise in organic revenue growth.
For the financial years 2019 and 2020, as a consequence of the major contract awards described above, Gerresheimer anticipates higher revenues in the low-margin engineering and tooling business as well as increased expenditure for relocation, employee training and production start-up/ramp-up, resulting in a temporary reduction in the adjusted EBITDA margin by approximately one percentage point compared with the figure for the financial year 2017[1]. As a result of the measures described above and of the major orders, the adjusted EBITDA margin at constant exchange rates is then expected to increase in the financial years 2021 and 2022 by about two percentage points relative to the financial years 2019 and 2020.
This growth will be made possible by additional capital expenditure on immediate capacity expansion which, on initial projections, will lead in the financial years 2019 and 2020 to a two percentage point increase in capital expenditure measured as a percentage of revenues at constant exchange rates. In addition, the Company will also incur capital expenditure for the plant to be built in Eastern Europe and for automation. Gerresheimer is still in the planning phase in this regard, but likewise expects a two percentage point increase in capital expenditure measured as a percentage of revenues at constant exchange rates. From the financial year 2021, the Company anticipates that capital expenditure measured as a percentage of revenues at constant exchange rates will return to its normal level of approximately 8%.
Business performance in Q2 2018
The Gerresheimer Group increased revenues at constant exchange rates from EUR 335.8m in the prior-year quarter to EUR 343.0m in the second quarter of 2018. On an organic basis-meaning adjusted for exchange rate effects, acquisitions and divestments-revenues consequently went up by 2.1% on the prior-year quarter. Demand for plastic vials for prescription drugs in the USA was very robust. Plastic primary pharma packaging also developed positively, mainly due to growth in India. Revenues from tooling were down in the quarter as budgeted. The inhaler project in North America performed well. Overall, however, medical plastic systems revenues were down on the prior year. Revenues from glass primary packaging in North America were higher than in the prior-year quarter. Corresponding revenues in China and from cosmetic glass also developed well. Due mainly to the change in the USD exchange rate, reported revenues fell in the same period from EUR 339.5m to EUR 332.6m.
An inhaler customer will not place any further orders for the Gerresheimer plant in Küssnacht as the customer's inhaler business fell short of its expectations. This will lose Gerresheimer revenues of about EUR 12m in the financial year 2018 and of up to EUR 15m in subsequent years. The Company is in advanced contract termination negotiations with the customer concerned and has already recognized an initial partial compensation of EUR 4.8m as income in the reporting period. Moreover, Gerresheimer expects further compensations during the course of the year, so that the total compensation will roughly correspond to the affected plant's contribution in the financial year 2018. Without this inhaler order, the Küssnacht plant no longer meets profitability expectations. In consultation with the remaining customers, Gerresheimer will therefore relocate production to other locations in Europe, ideally by the end of 2019, and close the plant in Küssnacht.
Adjusted EBITDA at constant exchange rates decreased as budgeted from EUR 74.9m in the prior-year quarter to EUR 73.9m in the second quarter of 2018. This includes a EUR 1.1m expense from the final measurement of the Triveni put option. Adjusted EBITDA after exchange rate effects came to EUR 71.1m, compared with EUR 75.8m in the second quarter of 2017. The adjusted EBITDA margin was 21.4% which, as expected, was below the 22.3% recorded in the prior-year quarter.
Adjusted net income after non-controlling interests came to EUR 26.0m in the second quarter, compared with EUR 30.4m in the prior-year quarter. Accordingly, adjusted earnings per share after non-controlling interests came to EUR 0.83 in the second quarter of 2018, compared with a prior-year figure of EUR 0.97. As a result, the company achieved adjusted earnings per share after non-controlling interests of EUR 2.68 in the first six months of the financial year 2018, a significant increase over the prior-year figure of EUR 1.56.
Net financial debt increased by EUR 61.0m to EUR 773.7m as of May 31, 2018, primarily as a result of the dividend payout and the last coupon payment on the redeemed bond. Calculated as the ratio of net financial debt to adjusted EBITDA over the last twelve months, adjusted EBITDA leverage stood at 2.6 times. Capital expenditure totaled EUR 14.8m in the second quarter of 2018, as against EUR 20.3m in the prior-year quarter.
2018 Outlook without consideration of Sensile Medical
The Company's expectations for the financial year 2018, in each case at constant exchange rates and without acquisitions or divestments, are set out in the following. In addition the potential effects of the acquisition of Sensile Medical, which are presented separately above have to be added. In total, for the US dollar-which is expected to have the largest currency impact on the Group currency, accounting for about a third of Group revenues in 2018 or about 40% of adjusted EBITDA-Gerresheimer has assumed an exchange rate of approximately USD 1.12 to EUR 1.00. As before, about a rise or fall in the US dollar against the euro by about one cent has an impact of around EUR 4m on revenues and EUR 1m on adjusted EBITDA.
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