Medios AG

XETRA:ILM1

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to the conference call of Medios AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in listen-only mode. After the presentation, there will be an opportunity to ask questions. [Operator Instructions]

May I now hand you over to Claudia Nickolaus, Head of Investor and Public Relations at Medios.

[Claudia Nickolaus, executive]

Good afternoon. Welcome, everybody, to our conference call on our results for the first quarter 2022 segment. As always, all relevant documents can also be downloaded from our Investor Relations website. Additionally, this presentation can be followed in parallel via the Internet thing provided to you in the invitation. Today, with me is our CEO, Matthias Gaertner; and our CFO, Falk Neukirch. Matthias will start with an executive summary, followed by Falk who will then provide details on the financials as well as on the outlook for the current fiscal year. And finally, Matthias will comment on Medios's growth strategy. Both gentlemen will be then available to answer your questions. I would now like to hand over to Matthias.

[Matthias Gaertner, executive]

Okay. Thank you, Claudia. Also a warm welcome from my side. Thank you for attending this call and for your interest in Medios. Once again, I'm proud to present Medios's first quarter results released today. '22 started off very well for us. With the fifth record quarter in a row, not only are we making progress in integrating our recent acquisitions, we also have achieved double-digit sales growth and disproportionate increase in earnings. Both operating segments contributed to record sales and earnings' growth with improved absolute operating margins.

I will start with a short summary of the achievements and highlights for the first 3 months '22. As in the previous calls, I will be referring to the slides of the presentation. Please go to Slide 3 directly. Medios's growth strategy is progressing. We successfully completed the acquisition of the NewCo Pharma Group, which significantly strengthens our market position in the manufacturing area. The merger with NewCo Pharma enables us to expand our competence in the field of patient-specific therapies and thus also significantly and sustainably increase the profit margin of the entire Medios group.

We have already started to leverage synergy potential and cross-selling opportunities through the now expanded network of compounding facilities as well as through the network of specialized partner pharmacies which has increased to around 600 through the merger with NewCo Pharma. In our profit and loss, the acquisition is already paying off as demonstrated by the positive development of our financial results. Furthermore, the setup of our new labs in the new building in Berlin, where our Berlin wholesale businesses already located is well advanced.

With this, we will be able to up to drive our production capacity in Berlin midterm and realize further synergies by concentrating logistics and warehousing at 1 site. Regarding the digitalization strategy, we have further rolled out our digital platform, mediosconnect. We are happy to announce that it is now available in 5 German federal states with more to come. Finally, we have focused on ESG. At the end of '21, we have approved our sustainability strategy and started right away with the realization in the first quarter of this year. In this regard, we have, among other things, started the implementation of an ESG data software.

Let me quickly come back to NewCo Pharma. What are the main benefits of this acquisition? Please see Slide 4. Let me summarize the main points. We complement each other, especially regarding the regional coverage. Together, we ensure an almost nationwide supply to our partner network of specialized pharmacies within the shortest possible time. Consequently, we will be able to also serve any time-critical preparation so-called ad hoc preparations to most of the specialized pharmacies in Germany, a significant competitive advantage.

With the 5 additional GMP compounding facilities of NewCo, we have already almost tripled our compounding business for individualized therapies to around 320,000 preparations per annum. Also, I would like to point out that together with the additional labs of our new building in Berlin, we will reach compounding capacities of 500,000 to 600,000 preparations per annum, and we have clear plans on how to use these capacities. The combination of Medios and NewCo offers significant growth potential through combining our partner networks of meanwhile around 600 specialized pharmacies, expanding our product and service portfolio as well as synergies and cross selling.

In a nutshell, this is remarkable strengthening of our attractive higher-margin segment, patient-specific therapies and I'm very pleased that this is already reflected in our Q1 results, leading to a significant increase of our group EBITDA margin to 3.6%. We have already realized synergy effects that result from the recent mergers with Cranach and NewCo, mainly in purchasing and logistics and cross-selling opportunities within our extended partner network.

Now a short summary on the financials for '21 illustrated on Slide 5. Impressive continuous growth of revenue and EBITDA pre clearly proving the positive effects of the most recent acquisitions, especially the remarkable increase of EBITDA pre and the respective margin. Following the corona burden in the second quarter '20, we have seen 7 quarters in a row of continuous growth of revenue as well as EBITDA pre. Even more impressive, each of the last 5 quarters representing new record levels.

The same picture on Slide 6, again, a record quarter with substantial growth year-on-year record sales and a disproportional increase of EBITDA pre. Falk will give you more details about this later on. Let's switch to Slide 7. Providing revenue and EBITDA pre breakdown per segment for the first quarter of this year, reflecting the impact of the consolidation of NewCo Pharma, namely a remarkable increase of the share of PST business regarding EBITDA pre from 25% for the full year '21 to now 48%, already above the 40% share that we aimed for in full year '22. This development is fully in line with our strategy and goals to increase the share of the higher-margin PST business.

The main points of our ESG strategy '25 are outlined on Slide 8. We published our new ESG strategy in December. It can be downloaded from our website. This strategy comprises well defined and ambitious targets that are being realized through concrete measures using more than 50 different internal and external key performance indicators to track and measure target achievements. There is that we cover 5 main fields of action, including governance, products and environment. Worth to mention that I'm the Chair of our Sustainability Committee that is monitoring the progress of the ESG program. And the Chair of our Supervisory Board is the ESG expert within the Supervisory Board.

And in this function is also a member of the Medios Sustainability Committee. The implementation of the software tool mentioned before, will support us to improve ESG data collection and transparency. I cannot repeat this of enough sustainability as and will be an important part of our corporate strategy. This is all from my side for the moment. I now hand over to Falk to provide more details on the financials and on the guidance for '22.

[Falk Neukirch, executive]

Thank you, Matthias. Also welcome from my side. Now I would like you to walk you through the numbers. Let's start with Slide 10, covering the figures for the first quarter of this year. A full set of financials can be found in the quarterly statement for the first quarter '22 on our website. If not explicitly mentioned, I will refer to the first quarter '22 compared to the same period of last year. The full consolidation of NewCo Pharma since 1st January '22 is reflected in the financials.

Consequently, we see a disproportionate improvement of the earnings' position of Medios Group compared to the prior year period. Revenue increased by 24.4%, thereof 8.5% organic growth and almost 16% inorganic. EBITDA pre rose by 60.7%, whereas both key indicators reached new levels. The gross margin increased from 5.0% to 6.7% due to higher share of PST business, also a result of the NewCo Pharma integration. EBITDA pre outperformed revenue growth driven by the consolidation of NewCo Pharma Group, the acquisition is already paying off.

The rise of the EBITDA pre margin to 3.6% is particularly increasing. The conversion rate of gross profit into EBITDA amounts to almost 54% for the first quarter, reflecting a slight decrease of around 1.7 percentage points, mainly a result of higher portion of PST business, which is more personnel cost-intensive. EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 4.84 million for stock options and M&A transaction costs. Depreciation and amortization climbed from EUR 3.8 million to EUR 5.4 million, mainly due to the amortization of customer-related intangible assets attributable to NewCo Pharma.

Operating cash flow amounted to minus EUR 2.5 million caused by 2 extraordinary effects, the payment of retained taxes and social contributions for stock option plans exercised in 2021; and b, the temporary increase in inventories. The inventory buildup is expected to be offset in the course of the financial year 2022. Adjusted for both effects, cash flow from operating activities amounted to approximately plus EUR 12 million in the reporting period. Cash flow from investing activities were especially impacted by effects in connection with the acquisition of NewCo Pharma.

The payment of the cash component of the purchase price of EUR 85 million and a cash inflow of EUR 6.0 million as part of the initial consolidation of NewCo Pharma. Financing cash flow of minus EUR 11.2 million resulted primarily from the scheduled repayment of former shareholder loans of Cranach Pharma and NewCo Pharma too in the amount of EUR 9.8 million. Thus, cash and cash equivalents amounted to EUR 73.5 million at the end of reporting period. The equity ratio decreased from 75.2% by end of '21, to a still very attractive 70.4%.

On Slide 11 and 12, we provide a breakdown of the organic and inorganic growth by segment. The revenue grew organically by EUR 26.9 million or plus 8.5%. The inorganic growth amounted to EUR 50.2 million or plus 15.9%, driven by the acquisition of NewCo. Around 75% of the inorganic revenue growth was allocated to our PST segment and the remainder to PS, representing the trade business needed to source NewCo's compounding activities. Organic growth of EUR 26.9 million occurred almost entirely in the PS segment, mainly a result of the synergy effects from acquisitions.

The slight organic sales increase of the compounding business for the first quarter is strategically driven by focusing on higher margin but usual lower revenue indications. Slide 12 shows the EBITDA breakdown by segment. EBITDA pre grew organically by EUR 5.6 million as a result of the NewCo integration, thereof EUR 4.7 million were allocated to our PST segment and the remainder to PS segment.

The increased demand for headquarter functions like IT and security as well as monitoring capabilities plus the development of board remunerations are reflected in higher costs in the segment services. Let's now switch to Slide 13. As just explained, organic sales development was almost flat in the segment. Patient-specific therapies and overall segment revenue climbed as a result of NewCo acquisition. The EBITDA pre rose respectively, fully in line with our strategy to focus on higher-margin products and to increase the share of the compounding business.

As already highlighted by Matthias, the share of the segment PST and the revenue of groups meanwhile, 48% and as such, above our target of 40%. Pharmaceutical supply generated 86% of revenues and 52% of EBITDA pre. Remember, at year-end '21, this continued fusion amounted to 88%. EBITDA pre margin slightly improved year-on-year. We confirm our guidance for '22 provided on March 29 and shown on Slide 15.

We still expect consolidated revenue of EUR 1.45 billion to EUR 1.6 billion and an EBITDA pre of EUR 52 million to EUR 58 million with a respective EBITDA pre margin increase to 3.6% what we already achieved for the first quarter. We stated that as a result of the NewCo Pharma acquisition, the share of Medios's overall EBITDA pre for PST will rise from around 21% at the end of '21 to around 40% in '22. The same here, this is already overachieved with a share of 48% for the first quarter of this year.

I want to explain again why the lower end of the revenue is not higher and seems to be too conservative. The answer is still the same. We consider the outright potential risk in our forecast. Furthermore, we expect additional costs due to the integration of NewCo Pharma and due to the implementation of our new labs in Berlin, for example, double rents and higher number of employees. However, we expect a significant increase of our EBITDA pre margin as a result of the consolidation of NewCo Pharma and the ongoing focus on higher-margin indications and products.

This goes along with higher margins but usual lower revenue of the manufacturing business. The explanation why the revenue guidance is not too low, we are already seeing this development in the first quarter. We are highly confident that our investments will pay off in '22 and the years beyond. Ladies and gentlemen, as you can see, the overall growth model of Medios is intact and showing excellent results. We are very well prepared to continue our successful and sustainable growth going forward. For this, we have a clear strategy. A summary of our growth initiatives, both organic and via M&A is outlined on Slide 16 and will now be presented by Matthias.

[Matthias Gaertner, executive]

Thank you, Falk. Our growth strategy remains unchanged and this implementation will further advance. We are on track and well positioned to drive future growth, not only in '22. During our previous earnings call, I highlighted the various activities to achieve growth. So I only want to stress our efforts relating to M&A, in particular, in the field of the compounding business, which will help leverage our additional compounding capacity.

Also, geographically, we would be interested in expanding our partner network, especially in Bavaria and/or Eastern Germany. And as we want to further increase our EBITDA pre margin, we want to tap the potential opportunities, which will enable us to achieve our objective international expansion of our activities. We still benefit from the high market potential in Germany with the consolidating market. However, we want to internationalize our business in the future and are considering launching new segments respectively, new services and/or products within the field of specialty pharma.

Ladies and gentlemen, this completes our presentation. Thank you for your attention.