Medios AG

XETRA:ILM1

Earnings Call Transcript 2024-Q1

[Operator]

Hello, ladies and gentlemen, and welcome to the conference call of Medios AG. At our customers' request, this conference will be recorded. [Operator Instructions]

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

[Claudia Nickolaus, executive]

Welcome, everybody, to our earnings call for the first quarter 2024. 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 link 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 for the first quarter 2024, the guidance for 2024 and the outlook for 2025. Finally, Matthias will comment on Medio's growth story. After the presentation, we will begin with a Q&A session.

I would now like to hand over to Matthias.

[Matthias Gaertner, executive]

Thank you, Claudia. Ladies and gentlemen, welcome to our conference call for the first quarter of '24. Overall, we started with a solid business performance into the year with a strong operating cash flow. The main highlights of the first quarter '24 are shown on Slide 3.

Let's start with the financials on group level. We recorded an almost 6% rise of revenue to EUR 456 million with a slightly increased EBITDA pre of EUR 15 million. We posted a very strong operation cash flow of EUR 43 million compared to minus EUR 25 million last year. On the basis of these solid figures, we confirm our guidance '24. Falk will provide more insight on the financials later.

Our main highlight of Q1 '24 is the acquisition of Ceban, an outstanding event for Medios, a milestone on our mission to create a European specialty pharma platform. This brings me to the new published yesterday. We are proud and very pleased to have Constantijn van Rietschoten on board. Since about a year now and on May 1, he was appointed as further member to the Executive Board. Our new Chief International Markets, in short, CIM will drive the international activities of majors and develop them further as a renowned expert for the various international markets. Furthermore, in Q1, the Executive Board contracts of Chief Operating Officer, Mi-Young Miehler; and Chief Innovation Officer, Christoph Prußeit, were extended ahead of schedule.

Regarding our ESG activities, we continue to work on the implementation of the CSRD and EU Taxonomy requirements. Consequently, our nonfinancial reporting '24 will be fully in line with these new standards. And finally, a few words on our most recent and first acquisition outside of Germany. Ceban Pharmaceutics is the Dutch market leader and also has activities in Belgium and Spain. We see this as an outstanding milestone in implementing the Medios internationalization and growth strategy.

On Slide 4, you can see an executive summary of this transformative and value-enhancing acquisition. This acquisition is the first milestone in our journey and vision to build the leading European specialty pharma platform. In addition, we get immediate market access to 3 European countries, the Netherlands, Belgium and Spain. The new Medios group will have a leading position in compounding of specialty pharma in Northwestern Europe. With this acquisition, we will significantly diversify our product portfolio and value chain in specialty pharma. We will run a network of 23 owned pharmacies in the Netherlands, and we'll be adding the API business. API stands for active pharmaceutical ingredients and the high-margin non-sterile business as well. The good cultural fit of the 2 groups strongly supports the cross-selling of potentials and synergies. I would like to stress that the transaction is immediately EBITDA pre accretive and will increase our earnings margin from the very beginning. We expect the closing of the transaction to take place during May.

Now let's move to Slide 5. Our German wide network of around 800 specialized pharmacies will be enlarged by Ceban's network of around 3,300 pharmacies and more than 200 hospitals as well as the 23 owned pharmacies. This is an excellent basis for our further European expansion and the realization of synergies and cross-selling opportunities. This also means that the number of the currently around 400,000 individualized preparations in '23 will substantially increase. More information on the Ceban transaction is provided in the appendix of this presentation. We expect to significantly exceed the EUR 100 million mark in EBITDA pre already in '25 with an EBITDA pre margin of over 5%. Falk will provide more insight on the financing later.

Now some comments on the financials for the first quarter of '24 as illustrated on Slides 6 and 7. Slide 6 shows the quarter-on-quarter development of our 2 KPIs, revenue and EBITDA pre. Revenue, EBITDA pre and the respective margin for the first quarter were above the level of Q4 '23 despite the already described regulatory price adjustments still impacting our PST business. Moreover, Q1 '23 revenue included EUR 3 million coming from Kölsche Blister that was sold in June '23. Revenue in Q1 '24 increased by around 6%, and EBITDA pre was slightly ahead of the first quarter of '23 as shown on Slide 7. All of this growth was attributable to organic growth. This is all from my side for the moment.

I now hand over to Falk to provide more details on the financials for the first quarter '24, the guidance '24 as well as our targets for '25.

[Falk Neukirch, executive]

Thank you, Matthias. Also welcome from my side. I will give you an overview on the financials for the first quarter of '24. The full financial statement can be found on our website.

Let's start with Slide 9. As already mentioned, we had a solid first quarter '24. Revenues increased by 5.8% to EUR 456.2 million, driven by the operational segment Pharmaceutical [ Supply ]. Gross profit was almost flat, amounting to EUR 27.6 million with a lower gross profit margin of 6.1% compared to 6.5% in the previous year. The growth of the PS segment was absorbed by the lower gross profit of PST due to the already mentioned deconsolidation of Kölsche Blister, regulatory headwinds and higher performance-based payments for additional compounding orders. The decrease of personnel costs by 4.2% to EUR 8.6 [ million ] results from deconsolidation of Kölsche Blister end of May '23. Mainly due to increased legal and consulting costs largely attributable to the acquisition process of Ceban, other operating expenses increased by EUR 1.7 million to EUR 7.3 million. Thank you.

And almost flat EBITDA pre of EUR 15.1 million compared to EUR [ 15 ] million resulted in a slightly lower EBITDA pre margin of 3.3% compared to 3.5% last year. As previously stated, the margin was driven by weak regulatory price adjustments as well as increased contribution of the PS segment resulting in lower EBITDA margins. The EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 3.3 million compared to EUR 1.7 million last year. This consists of EUR 0.3 million expenses for stock options, EUR 1.6 million for M&A transaction costs, EUR 1.4 million for performance-based payments for the acquisition of compounding volumes and EUR 0.04 million for ERP system implementation.

Depreciation and amortization amounted to EUR 5.2 million and remained almost unchanged compared to first quarter '23. The financial result of minus EUR 0.7 million is slightly below previous year's level of minus EUR 0.4 million and mainly includes interest payments for the utilization of the RCF and provision fees for the secured bridge financing relating to the Ceban acquisition. We generated a strong operating cash flow of EUR 43.4 million compared to minus EUR 25.4 million in the first quarter '23. This development mainly resulted from the positive operating result and actively managed working capital at the reporting date. As highlighted already in our last earnings call, end of March, in future, Medios will focus even stronger on cash flow by pursuing an active working capital management, especially in the PS segment. The goal is to generate quarterly a perpetual positive operating cash flow in the group and thus increase the annual operating cash flow compared to the previous year significantly.

For the first quarter, we delivered on what we were aiming for, even so supported by a few cash flow tailwinds on the reporting date. Investing cash flow of minus EUR 0.4 million reflects primarily investments in the -- in equipment, whereas Q1 '23 was dominated by the cash component for the BBW acquisition of EUR 19.2 million less acquired funds. Financing cash flow of minus EUR 1.3 million reflects interest payments, repayments of financial liabilities as well as payments for long-term finance lease contracts.

Free cash flow before M&A amounted to almost EUR 43 million following the operating cash flow in the first quarter of '24. Cash and cash equivalents amount to roughly EUR 113 million compared to EUR 71 million at year's end '23. The equity ratio decreased from 78.8% by end of '23 to 75% by the end of the first quarter '24.

Let's now switch to Slide 10. The 5.8% increase of group revenue is solely driven by the PS decline. The external revenue of the PS segment rose by 8.9% to around EUR 401 million. External revenue generated by the PST segment decreased by 12.5% to EUR 55 million, a decline of almost EUR 8 million, around EUR 3.5 million of this decline are attributable to the sale of Kölsche Blister. In addition, as already mentioned, regulatory price adjustment as well as higher performance-related payments for the acquisition of compounding volumes had also negative impact on revenue in the first quarter.

EBITDA pre for PS segment amounted to EUR 11 million, a plus of EUR 0.9 million or 9%. The EBITDA pre for the PST segment declined by EUR 0.7 million to EUR 5.9 million, 9.4% below previous year, mainly due to the already described regulatory headwind. The sale of Kölsche Blister had no significant impact on EBITDA pre year-over-year. The margin in relation to external revenue in PS was stable at 2.8%, whereas the PST margin increased from 10.4% to 10.8%. On group level, the EBITDA pre margin of 3.3% is slightly below the margin of the previous year.

Let's now go to Slide 12. Providing our guidance for the full year '24 for the Medios Group, including Ceban and an outlook for '25. We confirm our guidance for '24. We expect revenues to reach the range of EUR 1.9 billion to EUR 2.1 billion, reflecting a growth of 11.1%, considering the middle of the corridor. EBITDA pre is expected to be in the range of EUR 82 million to EUR 91 million, a disproportionate rise of 43% at the middle of the guidance corridor. The guidance of '24 is subject to the assumptions that Ceban acquisition will be closed still in May, and we are able to fully consolidate Ceban as of beginning of May '24. The EBITDA pre guidance includes integration costs, but it is adjusted for extraordinary expenses like M&A transaction costs, expenses for stock option programs, performance-based payments for compounding volumes and implementation costs for an ERP system.

As our ambition for '25, not as a guidance, the further integration of Ceban is expected to lead to revenues of approximately EUR 2.15 billion, the reason for the slightly lower revenue increase is a focus on increasing margins and cash flow, which, to a certain extent, also means that we would accept waiving revenues with lower profitability. Also, as an ambition, but not to be understood as a guidance, we expect in '25 for the first time to cross the EUR 100 million mark in EBITDA pre by a targeted EBITDA pre of around EUR 110 million and the corresponding EBITDA pre margin of around 5.1%. This shows very clearly that the acquisition of Ceban is EBITDA pre margin accretive. We will significantly increase our profitability with a potential EBITDA pre margin above 5%.

A summary of our strategic priorities is outlined on Slide 13. For this, I hand back to Matthias.

[Matthias Gaertner, executive]

Thank you, Falk. Our growth strategy is strongly advanced with Ceban. Its 3 pillars are outlined on this slide. In addition to strengthening our core business in Germany, Ceban will enable us to expand our operations into other European countries. And we plan to further diversify our business model by entering the production of advanced therapies, meaning medicines based on genes, tissues or cells, all expensive and complex therapies. This is also a very good fit for Medios as we are already a trusted partner for high-value trucks in Germany, and we will be one in our new European markets as well. As said at our last call in March, the Vice President being responsible for the new field advanced therapies started on April 2.

We are very pleased to have Dr. Andreas [indiscernible] on board. Andreas holds a PhD in biochemistry and has more than 25 years of professional experience in the field of diagnostics at [indiscernible] biotechnology and biopharma, among others, at Baxter, Shire and Lonza. Andreas has held various senior leadership positions in R&D, strategic and technical operations, business development, M&A and sales and has several years of experience abroad e.g., USA, Brazil and Switzerland. In his last position, Andreas worked for more than 7 years in the field of cell and gene therapy in several companies. Before he joined Medios, he was Senior Director of Strategic Business Development and Account Management at Lonza. I'm sure we will report regularly on progress in the area of advanced therapies in the future. As a result of Ceban's integration and the implementation of our growth story, we defined financial target for '25 replacing and exceeding our previously mentioned midterm targets, as just presented by Falk.

We remain excited and confident that we will achieve these targets. In a nutshell, our growth story is well on track. Thank you very much for your attention. Falk and I am now available to answer your [Audio Gap]