Medios AG
XETRA:ILM1
Earnings Call Analysis
Q3-2023 Analysis
Medios AG
Amid global challenges, the company achieved substantial success in the first nine months of 2023, particularly in the third quarter. Revenues were up roughly 11% for the 9-month period and nearly 17% for Q3 alone, hitting EUR 490 million. EBITDA pre likewise saw a healthy increase of almost 13% in Q3 to reach EUR 17.2 million, with an overall growth of around 6% for the first 9 months. The company's financial foundation looks robust, with its cash flow management enabling it to fully repay its loan liabilities, leaving it debt-free and with solid financing for growth initiatives.
Integral to its growth strategy is the international expansion, with a special focus on valuable acquisitions and partnerships, particularly in North Western Europe. The successful integration of bbw and advancing internationalization are key highlights. The company's active role in the UN Climate Ambition Accelerator program underscores a commitment to aligning with global climate goals.
The company's revenue in the first nine months set a new record at EUR 1.3 billion and record EBITDA of EUR 46.3 million. Margins were slightly compressed, with gross profit margins down to 6.2% from 6.7% and EBITDA pre margin at 3.4% compared to 3.6% in the prior year. These adjustments were largely due to regulatory changes and higher contributions from the patient-specific (PS) segment. Extraordinary expenses were accounted for, and depreciation slightly decreased.
The company has managed to increase diluted earnings per share by 3% to EUR 0.69, which was particularly influenced by a strong Q3 performance with a 20% earnings per share increase. While the operating cash flow was initially strained by inventory builds, Q3 brought in an impressive EUR 86 million, attributed to significant inventory sell-offs. This momentum is projected to continue into Q4, and operating cash flow for the year is estimated at EUR 37 million.
The previously drawn EUR 45 million under the revolving credit facility (RCF) was paid back during the third quarter, indicating sound financial management. However, the company observed a slight decrease in the equity ratio from 77.8% to 74.4%, primarily due to increased trade payables. Forward guidance was narrowed, projecting revenue of EUR 1.8 billion and EBITDA pre of EUR 60 million for the fiscal year.
Looking ahead, the company aims to earn more than EUR 2 billion in revenues with an EBITDA pre margin in the mid-single digits over the medium term. The strategic three-pillared approach focuses on reinforcing the core business in Germany, building a European specialty pharma platform, and diversifying by entering the advanced therapies production market. Confidence in achieved targets remains high as the company continues to explore potential M&A opportunities in Europe.
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Ladies and gentlemen, welcome to the conference call of Medios AG. At our customers' request, this conference will be recorded. [operator instruction] May I now hand you over to Claudia Nickolaus, Head of Investor Public Relations and ESG Communications at Medios.
Welcome, everybody, to our conference call on our results for the first 9 months of 2023. 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 9 months of 2023 as well as on the outlook for the current fiscal year. And finally, Matthias will comment on Medios growth story. Both gentlemen will be then available to answer your questions. I would now like to hand over to Matthias.
Thank you, Claudia.
Ladies and gentlemen, welcome to our conference call on the results for the first 9 months '23. We already published our preliminary key figures for the reporting period on the 24th of October. I'm happy to give you some more insights now. The first 9 months and especially Q3 were, again, very successful for majors, especially against the background of the ongoing global challenges.
Let's go directly to Slide 3, providing an overview of the highlights for the first 9 months of 23. First, both segments were doing well. Pharmaceutical supply had an excellent third quarter, not only benefiting from the sale of inventories. Furthermore, we managed to compensate the headwinds from regulatory changes since September 22 in the patient-specific therapy segment. The business development shows that we are well positioned with our specialty pharma platform and our 2 operating segments. Additionally, we increasingly benefit from the diversification of our customer groups and have strengthened our position as a reliable partner in the specialty pharma sector. One good example is that we offer highly specialized parental nutrition care for prematurely-born babies, and Service prevent an impending supply order mix. The integration of bbw and the sterile manufacturing volume of AfS in our lab as part of this acquisition further advanced successfully. Following the strategic sale of Kölsche Blister in June, we have centralized all blister activities in bbw's site near Stuttgart.
Second, we posted strong 9 months and Q3 figures. Revenue for 9 months grew by around 11% and EBITDA pre increased by almost 6%, excellent Q3 results and a record quarter. Revenue up by almost 17% to EUR 490 million. EBITDA pre increased by almost 13% to EUR 17.2 million. Operating cash flow was positive for the first 9 months and extremely strong in Q3 with EUR 86 million. That allowed us to fully repay our loan liabilities. Medios debt free and therefore, has a strong financing power for growth and potential M&A. We are confident for the development of the fourth quarter and narrowed our forecast 23. Revenue is now expected to reach EUR 1.8 billion and EBITDA pre to come in at EUR 60 million. Falk will provide some more insights on the financials later.
And third, we are making very good progress with the implementation of our extended growth strategy 25, especially regarding the internationalization of our business. The current focus is on value-enhancing acquisitions and on developing mutually benefiting partnerships in North Western Europe. Regarding our ESG activities, we can announce major participation in the UN Climate Ambition Accelerator program.
The 6 months program supports us in setting ambitious climate targets and provide guidance on aligning these targets with the Paris 1.5 degree target. Furthermore, we are currently working on the implementation of the Corporate Sustainability Reporting directive appreciated the well-known SRD and EU technology requirements. Elements will already be included in our nonfinancial reporting 23 for Metro still on a voluntary basis. Finally, we are proud to have received another award in October in addition to the M&A award and the best jobs with the future award in July, we received the employer of the Future Awards in October.
In a nutshell, in Q3, we made progress as planned despite some headwinds. The strategic inventory buildup in the first half of the year has paid off and resulted in a strong cash flow. We were also largely able to compensate for the effects of regulation. This positive development is reflected in the good financials for the first 9 months and especially in Q3.
Furthermore, we continue to successfully integrate bbw and intensified work on our internationalization strategy. Let me now share a short summary on the financials for Q3 and the first 9 months as illustrated on Slide 4 to 6. Slide 4 shows the quarter-on-quarter development of our 2 KPIs: revenue and EBITDA pre. Q3 was the best quarter ever in Medios history. Record revenue and EBITDA pre. Nevertheless, the ongoing regulatory price adjustments impacted our PST business to some extent. Consequently, the EBITDA pre margin for the third quarter was a quarter of 3.5% was slightly below last year's level but above Q2 margin. This pride is a wonderful example of how regulation offers great opportunities for Medios.
While our financials were affected by the regulatory headwinds in Q4 '22, we posted record KPIs 3 quarters later. I would like to stress that regulatory changes may have negative effects in the short term, but have positive effect from Medios as the market leader in the mid to long term. They also offer opportunities that we know to use.
Like, for example, the changed distribution process of hemophilia products in the past. Revenue in the first 9 months increased by around 11% to a new record of EUR 1.3 billion and EBITDA also amounted to a new record level of EUR 46.3 million, as shown on Slide 5. Most of this growth was attributable to organic growth despite the regulation and difficult framework conditions such as high interest rates, majors has once again recorded sustainable growth. Slide 6 shows that the share of the per segment increased, especially regarding EBITDA pre. We are now roughly at our target share of 40% for PST. This slide also clearly illustrates that we are very well positioned with our 2 segments. The ratio can be -- can and thus always change just as the therapies change.
The good thing about our setup is that we can use synergies between the segments and compensate for any possible weakness or influences. Now let's move to Slide 7, which you already know very well from my various references. Our network of specialized pharmacies now includes 750 partner pharmacies. We are clearly the #1 outsourcing partner for specialty pharma.
This is an excellent basis for our further German expansion. Based on our increased capacity and the agreement of manufacturing for IFRS that we mentioned before, we target to expand our compounding up to approximately 400,000 individualized preparations in '23, depending on indication areas and margin profile. 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 9 months of '23 and on the guidance for 23 million.
Thank you, Matthias. Also welcome from my side. I will now give you an overview on the financials for the first 9 months of '23. As always, a full financial statement can be found on our website. Let's start with Slide 9. As Matthias has already said, we had a successful first 9 months and an outstanding third quarter. Revenues increased by 10.9% to EUR 1.3 billion. 9 months record due to continued organic growth in both operational segments as well as inorganic growth by the acquisition of bbw in January 23.
Gross profit increased by 2.6% to EUR 83.6 million with a lower gross profit margin of 6.2% compared to 6.7% in the previous year. This is due to the already mentioned regulatory price reductions and the higher portion of revenue as well as gross profit originating from Pharmaceutical Supply segment, which shows distinct lower gross margins and PT segment. The increase of personnel costs by 7.1% to EUR 26.1 million as a result of the acquisition of bbw, the ramp-up of manufacturing at PST segment, the continued buildup of central functions and scheduled salary increases as well as performance-related reliable payments despite the constantly growing media grew organically and inorganically, we were able to freeze other operating expenses in the amount of EUR 60 million at previous year level.
Mainly rising IT costs were offset by savings in a handful of other expense categories. EBITDA pre grew by 5.7%, resulting in an EBITDA pre margin of 3.4%, which is below the margin in the previous year of 3.6%. As already mentioned, this is caused by the regulatory price adjustment since September 22 and also by the higher contribution of the PS segment, which delivers lower EBITDA margins. The EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 4.8 billion. Thereof, for stock options, EUR 1.1 million, EUR 0.3 million for M&A transaction costs and EUR 3.4 million for performance-based payments for the acquisition of compounding volumes. Depreciation and amortization slightly decreased from EUR 16.1 million to EUR 15.8 million. Depreciation and amortization effects of the latest acquisition in the amount of EUR 0.6 million were compensated by meanwhile, fully depreciated PPA assets of former acquisitions. In the 9 months reporting PVS drawings under the RCF to finance the latest acquisition and stock buildings to benefit from price increase that triggered an increase in financing costs by around EUR 800,000 to EUR 1.6 million.
The amount of EUR 45 million drawn under the RCF end of June were fully repaid in the third quarter. And diluted earnings per share increased by 3% to EUR 0.69, mainly driven by the strong third quarter with a 20% rise in EPS. The first 6 months were burdened by the already described regulatory impacts, performance-based payments for the acquisition of compounding volumes and the just mentioned rising financing costs in the reporting period.
The very strong operating cash flow in the third quarter of EUR 86.0 million is mainly a result of the significant inventory sell-off in the PS segment. In contrast, operating cash flow in the first 6 months was negatively impacted by the corresponding buildup of inventories. We expect to reduce our inventory by an ongoing sell-off during Q4 with further positive impact on operating cash flow and still expect an operating cash flow of roughly EUR 37 million for '23.
Investing cash flow of minus EUR 16.5 million resulted primarily from the cash component for the BBW acquisition of EUR 19.2 million less acquired funds. As no cash outflows or inflows from significant investments and divestments occurred in the third quarter. Investing cash flow was almost unchanged compared to the first half of '23.
Financing cash flow of minus EUR 3.7 million resulted mainly from repayment of financial liabilities from rental agreements amounting to minus EUR 1.8 million and interest paid on loan liabilities amounting to minus EUR 1.6 million. Free cash flow before M&A amounted to just under EUR 10 million in the first 9 months and around EUR 86 million in Q3 as CapEx spending was minor. The higher level of inventories of EUR 71 million compared to the end of '22 is a normal pattern, a stock level NPS segment normally lower at the end of the year. This, we do also expect for end of '23. Cash and cash equivalents amount to roughly EUR 7 million, which is on financing pillar for future tons. The equity ratio decreased from 77.8% by end of '22 to 74.4%, mainly because of an increase of trade payables to EUR 80 million, an increase of EUR 32 million by end of the reporting period.
On Slide 10 and 11, we provide a breakdown of the organic and inorganic growth by segment for the first 9 months of '23. Let's start with Slide 10. Revenue grew organically by EUR 91.2 million or plus 7.5%, almost entirely in the PS segment. Inorganic revenue growth amounted to EUR 40.9 million or plus 3.4%, driven by the latest acquisition.
Around 82% of the inorganic revenue growth were allocated to our PS segment and the remainder to PSC segment. Slide 11 shows the organic and inorganic EBITDA pre breakdown by segment for the first 9 months of 23%. EBITDA pre increased inorganically by EUR 1.9 million as a result of the BW acquisition, thereof, EUR 1.1 million were allocated to our PS segment and the remainder is -- the increased IT and personnel costs for central functions are reflected in the segment services. Let's now switch to Slide 12.
Both operating segments contributed to an increase of external revenue of around 11%, but mainly driven by the PS segment. In the PS segment, external revenue increased by almost 12% to around EUR 1.2 billion, of which EUR 33.5 million were contributed by bbw. External revenue generated by the PST segment increased by 5% to EUR 175 million. EBITDA pre for the PS segment increased to EUR 33.7 million, which corresponds to an increase of plus 1.5%. EBITDA pre for the PSC segment declined to EUR 17.8 million, 7.8% below the previous year. The decline in margin is mainly due to the already described regulatory headwind.
So overall, the margin in relation to external revenue NPS was up 0.2% to 2.9%, whereas the PSC margin is still double digit, but decreased from 11.6% to 10.2%. As outlined by Matthias, we are well positioned with 2 operating segments so that temporary adjustments in one segment can be compensated by the other. On group level, the EBITDA pre margin of 3.4% is slightly below previous year margin of 3.6% as a result of the already described effects Slide 13 provides an overview of our current financing power.
In total, we have more than EUR 140 million of refunds available resulting from available cash and RCF. Media's net leverage ratio, net debt to EBITDA still offers further headroom for debt financing. Let's now switch to Slide 15. Matthias has already briefly presented the further narrowed guidance. We now expect the revenue to reach approximately EUR 1.8 billion, which would be at the other end of the forecast corridor of EUR 1.6 billion to EUR 1.8 billion.
EBITDA pre for the fiscal year '23 is expected to be approximately EUR 60 million, reaching a value in the middle of the forecast corridor of EUR 56 million to 63 meg. The key message remains the same. The specialty pharma market is resized and will grow steadily. Also, our growth costs will continue. A summary of our strategic priorities is outlined on Slide 16 for this and over to Matthias.
Thank you, Falk. Now some words on our extended growth strategy 25, starting on Slide 16, showing the 3 pillars of our strategy. In addition to strengthening our core business in Germany, we intend to build the European specialty pharma platform and expand drug compounding operations into other European countries. And we plan to further diversify our business model by entering the production of advanced therapies.
All this should lead to more than EUR 2 billion in revenues and an EBITDA pre margin in the mid-single digits in the medium term. We remain confident that we are well on the way to achieve these targets. Our statements on how we intend to strengthen our business in Germany remain valid. We still want to close the white spots in our geographic coverage by acquiring respective labs and/or conclude cooperation agreement, and we will further diversify and expand our indication areas. For example, we started to parental nutrition opiate babies nationwide at the beginning of '23. I would like to give you more details on our European growth ambition shown on Slide 17. Our strategic priority is to create a pan-European platform for compounding. Internationalization, our activities, we will create synergies and cross-selling opportunities while we will also be able to leverage our extensive platform of over 750 specialized partner pharmacies in Germany by far the largest pharmaceutical market in Europe.
We execute the disciplined M&A approach focused on 5 criteria. First, the target should be a leading top 3 player. Second, the target should generate revenues of maximum EUR 150 million and realized an EBITDA margin of at least 10% or could get there in maximum 24 months.
First, the target should have a nationwide coverage or platform and operate in an attractive factory environment that allows outsourcing of compounding. Fourth, the target should also have an experienced management and a cultural and strategic fit with Media and fit in the context of a successful transaction, sales synergies and cross-selling opportunities should be realized in less than 24 months. In a nutshell, the deal has to be clearly value accretive. We are currently in discussions with the handful targets that meet these criteria. We are excited about the developments and will inform the market when the first transaction materializes.
Now some information on the third and last pillar of our extended growth story, entering the corn breaking market of advanced therapies, meaning medicines based on genes, tissues or cells all expensive and complex therapies. This fits well as we are already a trusted partner for high-value trucks in Germany. We have also made progress in this area.
We are currently working on the target operating model for the Advanced Therapies division. We are happy that the new high profile manager who will be responsible for the new field advanced therapies is about to start soon. Besides that, we are in discussions with potential strategic partners. As outlined by Pal, we have a strong financial basis that enables the financing of our extended growth strategy. I would like to conclude the presentation with an outlook and a summary of the key messages see also Slide 18. We have achieved an excellent performance in the first 9 months and especially in Q3. We further strengthened our market leadership in specialty pharma.
As outlined, we were able to mitigate the impact from regulatory changes by diversifying our products and by focusing on synergies. We focused on strategic inventory management. This has paid off. We are confident about the rest of the year and narrowed our guidance and expect EUR 1.8 million in revenues and EUR 60 million in EBITDA pre. In addition, we are in ongoing talks with several potential M&A targets in Europe. In a nutshell, our growth story is well on track. Thank you very much for your attention.