Medios AG

XETRA:ILM1

Earnings Call Transcript 2023-Q1

[Operator]

Ladies and gentlemen, welcome to the conference call of Medios AG. At our customers' request, this conference will be recorded. [Operator Instructions]. May I now hand you over to Matthias Gaertner, Chief Executive Officer of Medios. Please go ahead.

[Matthias Gaertner, executive]

Okay. Thank you very much. And also from my side, ladies and gentlemen, welcome to our conference call on the results for the first quarter '23. As in the past, all relevant documents can be downloaded from our Investor Relations website. Additionally, this presentation can be followed in parallel via the Internet link provided to you in the invitation. I will start with a summary of the Q1 business development. My colleague, Falk Neukirch, will then go through the financial details and the guidance for '23 at the end, I will comment on Medios's growth strategy. Afterwards, both of us will be available to answer your questions. We will be a bit briefer than usual today since we talked just 6 weeks ago in the context of the 22 full year results.

All in all, we had a successful start into '23. And we're able to successfully cope well with the ongoing challenges, especially regulation issues. Let's go directly to Slide 3, providing an overview of the high of the highlights for the first quarter '23. First, we further strengthened our patient-specific therapy segment through the sterile manufacturing collaboration with [indiscernible] as part of the acquisition of bbw as of January '23. We have started the integration process and are supported by our experienced internal post-merger integration team as was the case in previous acquisitions.

This is an important building block to realize good synergies and cross-selling effects also based on around 15 new partner pharmacies. Second, we posted good first quarter financials, record revenue of EUR 431 million and the second first quarterly EBITDA pre of EUR 15 million with a group margin of 3.5%. This development is based on sustainable growth of both business segments. And for the first time, the consolidation of bbw. It must be mentioned that first quarter results are additionally impacted by the strategically driven inventory buildup and by regulatory issues. Intentionally, operating cash flows were negative in Q1. Falk will provide you with some more insights on the financials later.

And third, the implementation of our extended growth strategy '25 is progressing. Meanwhile, our Head of International Business Development, [indiscernible] has started its work to drive forward internationalization as part of the extended strategy. I will come back to this later in more detail. As briefly stated in our last call, we have started to offer highly specialized rental nutrition care for prematurely [indiscernible] . Another building block to extend our services. With this, we prevent an impending supply bottlenecks, diversify our customer groups and strengthen our position as a reliable partner in the specialty pharma sector.

The implementation of our ESG strategy is progressing well. Based on the start of '22, we are now able to sharpen our climate and environmental targets, in particular in the course of the year. In a nutshell, in the first quarter, we set the cost for '23 as planned. This includes, in particular, to strategically build inventories in expectation of higher prices later in the year, continue to successfully integrate new Pro forma and bbw and intensify work on our internationalization strategy. Consequently, we expect ongoing growth in '23 and confirm our full year guidance.

Taking into account the change reimbursement scheme in our PST segment since September '22, and the general economic uncertainty. Now let me share a short summary on the Q1 financials as illustrated on Slide 4 to 6. Slide 4 shows the strong quarter-on-quarter growth of our 2 KPIs, revenue and EBITDA, we achieved consistent growth except for Q4 '22, reflecting the negative impact of the regulatory changes, which became effective on September 1, '22. This effect is also illustrated on Slide 5 with a 10% increase in revenue compared to a 6% EBITDA free growth, leading to a slightly lower margin compared to last year. Slide 6 shows that we stick to our strategy of focusing more on the higher-margin patient-specific therapy segment to sustainably increase the margin of the entire Medios group.

So far, we have been able to successfully implement this strategy and increase the EBITDA contribution of the PST segment up to 44%. Now let's move to Slide 7, which you probably already know very well. It describes our strong network of [indiscernible] , around 720 specialized partner pharmacies, an excellent basis for our further German expansion. Based on our increased capacity and the agreement of manufacturing for AfS that we mentioned before, we target to significantly extend our manufacturing and compound up to more than 400,000 individualized preparation in '23.

On Slide 8, please find an update on our ESG activities. As mentioned in March, we have been able to expand the depth and breadth of our ESG database, thanks to our new IT-based ESG software. So we will define '22 as our baseline year regarding our future ESG performance. Until the end of '23, we intend to update our ESG strategy by defining concrete targets for our environmental impact. Furthermore, Medios has now been rated by the most relevant international ESG rating agencies with steady improvement. This is all from my side for the moment. I now hand over to Falk to provide more details on the Q1 financials and on the guidance for '23.

[Falk Neukirch, executive]

Thank you, Matthias. Also welcome from my side. I will give you a detailed overview of the financials for the first quarter of '23 now. A full set of financials can be found in the quarterly statement on our website. Let's start with Slide 10. As Matthias already said, we had a successful start in '23. Q1 revenues increased by 9.7% to EUR 431 million due to the continued growth in both operational segments as well as the consolidation of our latest acquisition, bbw in January '23. Gross profit increased to EUR 27.9 million with a slightly lower gross profit margin of 6.5% compared to 6.7% for Q1 '22, which is mainly due to the regulatory price [re-deduction] that have been effective since September '22 or [indiscernible] .

Personnel costs follow the development of headcount. The increase of personnel costs by EUR [ 0.78 ] million to EUR 9.4 million is a result of the acquisition of bbw and onetime effect in the PIT segment. The increase of other operating expenses by EUR [ 0.9 ] million to EUR 5.6 million was mainly driven by the integration of bbw Group. Further cost increases resulted from enlarged rented space as well as higher energy prices and IT costs. EBITDA pre grew by 5.8% with an EBITDA pre margin of 3.5%, almost flat to the comparable margin of 3.6% in the previous year, but higher than in Q4 '22 with 2.8%.

This development is also reflected in the development of earnings per share. And it shows the stability of our business model and simultaneously our ability to conquer challenges like the regulatory price adjustments end of '22. For your background, the adjusted EBITDA, low cost EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 1.7 million. Thereof, for stock options, EUR 0.4 million, EUR 0.2 million for M&A costs and EUR 1.1 million for performance-based payments for the acquisition of manufacturing volume. Depreciation and amortization slightly decreased from EUR 5.4 million to EUR 5.3 million. This includes already effect of the last acquisition in the amount of EUR 0.2 million. The negative operating cash flow of minus 2.5 -- sorry, of minus EUR 250.3 million resulted in particular from the strategic buildup of inventories in preparation for expected upward price adjustments in the pharmaceutical supply business in the second half of 2013.

In addition, sales driven increase in receivables and performance-related payments for the takeover of manufacturing volumes in the amount of EUR 5.7 million, further lowered operating cash flow in the reporting period. As already explained, we intend to sell off the higher inventories currently being built up in the second half of the year with a corresponding positive impact on operating cash flow. Cash flow from investing activities of minus EUR 17.2 million resulted mainly from the net cash component of the purchase price of bbw acquisition of EUR 19.4 million, minus EUR 2.4 million acquired cash.

The financing cash flow of to EUR 204.1 million resulted primarily from the drawing of EUR 25 million under the revolving loan to finance the last acquisition. Due to the effects just described above, cash and cash equivalents amounted to EUR 60.7 million at the end of the reporting period, down from EUR 79 million at the beginning of last year. The equity ratio decreased from 77.8% by end of '22 to 73.2%. Let's now switch to Slide 11. Both operating segments contributed to the sales increase of 10%.

In the Pharmaceutical Supply segment, external revenue increased by 8.5% to 368.1 million, EUR 11.6 million of which was attributable to bbw. External revenues generated by patient-specific therapies increased by 17.4% to EUR 62.9 million. EBITDA free for Pharmaceutical Supply segment increased to EUR 10.1 million, which corresponds to an increase of 21.2%. EBITDA pre for patient-specific therapy segment was EUR 6.6 million, slightly below Q1 '22.

The decline in margin is mainly due to the regulatory [indiscernible] . So overall, the margin in [PS] pharmaceutical supply was up 4.3 percentage points to 2.8%, whereas the PST margin decreased from 12.9% to 10.4%. On group level, the EBITDA pre margin of 3.5% is almost stable compared to 3.6% for Q1 '22. Slide 12 provides an overview of our current financing power for our growth plan. In sum, we have more than EUR 100 million of free funds available resulting from available cash and our revolving credit facilities. I would like to emphasize that Medios's net average ratio provides further headroom for debt financing by taking advantage of the step-up option of the existing [indiscernible] by another EUR 50 million debt and even further loan arrangement.

On top of that, we will ask our shareholders to grow for a 10% authorized capital increase at our forthcoming AGM in June, which will further strengthen our financing power for future growth. Let's now switch to Slide 14 and 15. We confirm our guidance for '23 as presented on the 22nd February with our preliminary results and confirmed in March during our full year reporting. Despite ongoing economic and regulatory uncertainties, we expect revenue to reach the range of EUR 1.6 million to EUR 1.8 million, EBITDA pre is expected to rise from EUR 56 million to EUR 63 million. The guidance takes into consideration assumptions is outside on Slide 15.

The impact from last year's regulation of price changes is considered in this guidance. Global uncertainties do still exist such as rising inflation and rising inflation and supply chain bottlenecks. However, the key message remains again the same. Our growth costs will continue. A summary of our strategic priorities is outside line on Slide 16. For this, I hand over to Matthias.

[Matthias Gaertner, executive]

Okay. Thank you, Falk. Now some words to our extended growth strategy '25 presented in November last year and at our full year earnings call end of March this year. I will, therefore, [be prefer] today and focus on the update. Slide 16 shows the 3 pillars of our strategy, which remains unchanged. In addition to strengthening our core business in Germany, we intend to expand drug manufacturing operations into other European countries, and we plan to further diversify our business model by entering into the production of personalized medicine. In Germany, we still want to close the white spots in our geographic coverage by acquiring respective labs and/or conclude cooperation agreements as well as by rolling out mediosconnect, our innovative digital platform for the PST business.

Also by increasing the number of software and tertiaries behind our partner pharmacies, and we will further diversify and expand our indication area. The most recent example is that we started to provide parental nutrition for 3 major born babies nationwide. So we prevent an impending supply bottlenecks and strengthen our position as a reliable partner in the specialty pharma sector. As this involves in patient care, we work as the manufacturing partner for hospital pharmacy. And in this way, we diversify our customer group.

We already received the necessary special approval from the relevant pharmaceutical authorities at 2 manufacturing sites so that the highest level of supply security can be guaranteed. We made progress with the implementation of our internationalization strategy to expand compounding within Europe to gain continued growth while increasing profitability. We pursued 2 approaches in the implementation, developing mutually benefiting partnerships in Europe and value-enhancing acquisitions.

What could be, among others, achieved by realization of synergies, cross-selling and leveraging platforms. [indiscernible] , our new Head of International Business Development starting in April. Together with our experienced M&A department, we have an excellent market knowledge and extensive networks in the European specialty pharma market now. So the longest of potential targets was intensively analyzed screened and discussed resulting already in a short list of potential acquisition candidates.

Talks are initiated with around 10 pharmaceutic companies in Europe about the partnership or potential acquisitions. We are very confident about the current developments and will inform the market immediately when the first transaction materializes. By internationalizing our business, we can further strengthen our market position and at the same time, diversify our customer groups to become more independent of German health care regulation.

Now some information on the third and last pillar of our extended growth strategy, entering the groundbreaking personalized medicine market, summarized under the term advanced therapies, meaning medicines based on genes, tissues or [health], all expensive and complex therapies. This fits well as we are already a trusted partner for high-value drugs in Germany. In addition, there are already widespread capacity shortages in the manufacture of novel therapies and market expects capacity to lack demand in the future.

As outlined by Falk, we have a strong financial basis that enables the financing of our extended growth strategy.

Before I conclude the presentation, let's switch to Slide 17. At our Capital Markets Day, we presented our group midterm target '25 to '27 for the first time. One of our main goals is to further increase our EBITDA pre margin. That's why we want to tap further opportunities, which will enable us to achieve our objective by internationalizing our business and by potentially launching new segments, respectively, new services, all within the field of specialty pharma.

By implementing our extended Strategy '25, we aim to achieve a medium-term target of EUR 2 billion in revenue and an EBITDA pre margin in the mid-single-digit area.

Ladies and gentlemen, this concludes our presentation. We hope to see you in person at the conference soon or to hear you at our next earnings call on August 14. Thank you for your attention. Falk and I am now available to answer your questions. Operator, could you please read out the instruction.