Medios AG (ILM1.F) Earnings Call Transcript & Summary

Good day, and welcome to Medios AG Analyst and Investors Call on our first half 2026 results. My name is Katrin Neuffer, and I'm Director, Investor Relations at Medios. It is a pleasure to welcome you to today's call. Our CEO, Thomas Meier, and our CFO, Stefan Bauerreis, will take you through the presentation today. They will provide an overview of our business performance in the first half 2026, including the key financial figures and important developments at Medios. Following the presentation, we will have time for a Q&A session, during which you will have the opportunity to ask questions. As a reminder, this conference will be recorded. [Operator Instructions] All relevant documents can be found on our website. And with that, I would like to hand over to Thomas Meier. Thomas, please go ahead.

Good morning, everyone. We prepared 30 slides today. We want to keep it short so that we have ample time for Q&A and for the partial solar eclipse later over Europe. So the executive summary to start with. We achieved revenue of EUR 1,075 million, and that's a plus of 8.4% and the first time that Medios achieved more than EUR 1 billion in the first half year. Our EBITDA pre is at EUR 44 million, that's minus 5.1% and an EBITDA pre margin of 4.1%. Our focus is unchanged. We focus on profitability, cash conversion and operational efficiency. For that, we started the project Avanti Medios, that is helping us to cut costs and to help those operational excellence initiatives that are long term, but I think we see the first positive development in the second quarter. Yesterday, we announced a strategic milestone with the acquisition of Caelo, a company that fits our compounding initiative and helps us to enter the German market. We're excited about this opportunity, and we will give you more detail in this slide deck. Looking at the numbers of the first half year, we see that our revenue grew. All segments helped with the revenue growth. And at the same time, EBITDA pre margin is lower than in the previous year. That is due to lower profit margin and increased operational expenses. We see those effects continue in the second half of the year, and that's why we adjusted our guidance as we told you last week. If we look at the different business areas, we see pharmaceutical supply with a revenue growth of 8.5% and at the same time, price pressure on specific margin high products. That resulted for that segment a 2.7% margin compared to 3.3% last year. That's where we had the biggest impact in the first half year. Patient-specific therapies, on the other hand, we also see a strong revenue growth of 8.5%. And what's very rewarding to see is that in Q2, our operational excellence measures helped to increase the EBITDA margin to 10.2%. We expect positive development for the second half of 2026 in that business area. Our international business revenue growth is 6.9% and also a healthy EBITDA. And at the same time, we see some margin pressures going forward, and we took that in our adjusted guidance. On the regulatory radar, we see the drug price regulation, Hilfstaxe, still under arbitration. So we don't really know what the outcome will be. We expect that to be closed, this arbitration procedure, in 2026. And in our forecast, we have only a limited impact there, knowing that it is not yet known. For pharmacy reform plan, we don't actually see a significant influence on Medios and the GKV Contribution Rate Stabilization Act is in force since the 30th of July, and we got a negative there that the cannabis flowers are no longer reimbursed. That movement was a little bit faster than what we expected, and we took that negative impact into our adjusted guidance. Health Security Act is still under planning. It is not yet in the government bodies. We expect that to be happening in the fall window and see there an opportunity for Medios once the regulation is known. The EU directive is a rather long-term project. There is nothing changed. We believe that the national law will integrate those adjustments in the second half of 2028, and we see those development in Europe, we are rather supportive of our business model. So much for the regulatory radar and now to what everybody is probably most interested is the acquisition of Caelo. Here are the details. We have a -- we're going to buy a 74% stake in Caesar & Loretz GmbH. That's a total consideration of EUR 9.4 million. We paid EUR 7.9 million for the 74% of the shares. We have a EUR 1.5 million control premium, which later can be deducted when we will buy the remaining 26% of the shares. Included is an earn-out provision that depends how the market develops of EUR 1.8 million. Caelo is the market leader for compounding ingredients in Germany. So it accelerates our entry in the German market. That's something we were looking for, and it has a complementary product portfolio to our PST business that is complementary and also serves the pharmacies. So we see synergies there. We also see process synergies in combined sourcing, marketing and sales mainly going forward. Signing was yesterday, and now we are going to the antitrust process, and we hope that we can close the deal in a relatively short period of time. What's the company Caesar-Loretz? We have 240 employees working there. We are serving pharmacies, hospital, industrial clients, mainly in Germany. And overall, it is the compounding essential business. We sell OTC products to pharmacies, to hospitals and also to the pharma industry. Overall, they make EUR 40 million revenue is the expectation in 2026, and they expect an EBITDA of EUR 1.6 million. Our target for the EBITDA is higher. We see that we can -- as a combined entity, we can increase this margin profile going forward. It was founded a long time ago in 1886 and headquartered in Hilden and Bonn and the Managing Director, Asiye Dogan, will remain in the director role, while Ulrich von der Linde will retire to be shareholder going forward. How does that deal fit with our strategic objectives? It will strengthen our core market in Germany. That's very important and it will add services for pharmacies as we do the dispensing for smaller quantities in those facilities that are GMP approved. Caelo is the clear market leader with what you see up here in the right corner, a very, very well-known brand in the pharmacies. You really see the Caelo label in every pharmacy that does some compounding business. So we see a good opportunity to further strengthen that brand recognition and position it in the Medios network even more successful than in the past. It is also a next step for our European API platform extension. We have Metapharmaceuticals in Spain and Magis in Belgium, and we will combine that as one Compounding Essential GmbH under the leadership of Constantijn. And we see growth opportunities in Europe and have now a solid platform to further go after those opportunities. Where are the synergies? Certainly, in the supplier network. It's important that we have a professional sourcing organization for all 3 companies, and we see opportunity there to have a better procurement operations going forward. We also add capacities to our network where we believe we can further grow the business, and we'll do that in our integration office going forward. With that, I pass it on to Stefan, who explains you more about the financial details of this transaction.

Thank you very much, Thomas, and also welcome from my side, and I will jump in directly in this slide regarding the financial assessment of the transaction and the acquisition of the 74% of Caelo. So let me focus on 3 topics: synergies, the valuation and also how we will finance the whole transaction once closing takes place. So on the synergies side, as Thomas already pointed out and mentioned, there is mainly opportunities around there in terms of the cooperation between all our API businesses that we have with -- now with Caelo in Germany, but also in Spain and in Belgium and combining this kind of stuff. And we are also tried really much to separate and to see what are the opportunities in terms of synergies that we could get out for and that you can see on the black bar, which are the synergies that we will see on Caelo level itself and what are the ones that we believe that we will see on the level of the other 2 companies. So that will mean we will have, let's say, a good 2 years, 2 to 3 years to really come to the full extension of the synergies that we want to get or that we believe that are realistic. They are obviously mainly focused on the strengthening of the cooperation of a very good purchasing network. And therefore, really much this has to be the focus of our synergies, the operational excellence, the cooperation between Magis Pharma, Meta and Caelo, and this will start immediately after closing took place and all the approvals are there. So in total, we will see a EUR 2.1 million opportunities, which compared to the EBITDA number that the company currently has is a quite significant improvement that we believe that we could get. In addition, then coming to the valuation, all what you see here, the EBITDA multiple based on the 2024/2025 because the company has a fiscal year, which is not the calendar year. That's why it's called like that. It's an EBITDA multiple of 5.4x. You have to know that all these numbers that were discussed with Caelo as of now before closing are numbers of the company which is doing all their accounting based on German GAAP. So all these reclass what you normally see or you have to see based on IFRS 16 for leasing expenses is not yet included. And therefore, by technical issue itself will also increase margin and will optimize also here the multiples that we see. So what you see here in the numbers, it's all the EBITDA multiple based on the German GAAP numbers. And therefore, with the synergies, we really strongly believe that we will bring a significant improvement of the qualities of earnings in there. Talking shortly about the financing of the transaction. So we made there a bridge financing of 1 year, which is based on the following condition. This is the euro short-term rate is the basis, and we have there an interest margin of 0.85% that we have to pay. I think these are very, very good conditions in terms of getting the financing structure of the company. Why we decided to do a 1-year based bridge financing in the first instance because you know in our credit facility that we have with our core banks, there is also a kind of revolving credit facility involved where we have an increased option that we then can take in 2027. So the point is here, we will not refinance the bridge with a complete different transaction in terms of financing, but we -- with the structure of the extension increase option of the RCF, we are able to do that in a very easy level than in 2027 and therefore, are here on a very safe side. In addition to that, you have to know that our leverage ratio is as of now before the acquisition with 1.32 in a very conservative and a very good and low level. And even with the acquisition, also already here taking into obligate -- in mind the leasing obligation that we then have to show as financial debt. We will change that to increase from 1.32 to 1.42 due to the fact that we have to finance the purchase price and on the other side, also having there a 5-year term loan, a 5-year rental agreement for both locations in Hilden and Bonn, but with additional extension option also for the future. So flexibility in that perspective is 100% on our side, and that is very healthy and very good. So this having said, I would like to close my additional information on the financing side of the transaction and give you a flavor of what are the next steps. So obviously, yesterday, as Thomas said, we had the signing of the contract. Now in the following days on a short-term basis, we will make the notification to the competition authorities, the Bundeskartellamt. With all what we know, all what we got as information from the lawyers, it's nothing that we should expect in terms of any issues. So it's a formality that we have to do. But nevertheless, it's an important one, and we take it serious. And then the intended closing, once again, it's always depending on when we get the green lights from the Bundeskartellamt will then be there and hopefully, and we believe that in Q4, we will can manage that and having there the closing of this transaction. This having said, going back to the financial overview of Medios and coming back to the half year numbers and giving you a little bit more detailed flavor of where we are. Thomas already pointed out that we have a strong organic growth in revenues. But at the end of the day, when we're talking about the EBITDA pre margin, we reduced from 4.7% last year to 4.1 percentage points. We will come when I guide you through the different segments to the different reasons why we had that. An additional information, I think, which is needed is even when it's not yet guided, it's the cash flow from operating activities. It reduced significantly from EUR 23.4 million in the first half of last year compared to the EUR 11.2 million this year. This is mainly due on the one side, obviously, due to the somehow a little bit lower level of the EBITDA that we have as a company. But on the other side, and that is what we have to know, it's mainly timing issue due to tax payments because significantly higher tax payments or lower tax refund took place in the first half of 2026 compared to 2025, what we saw there. And this alone on the tax side, these are impacts on around EUR 6 million, which obviously negatively impacting the operating cash flow. Talking about everything what is working capital. We are absolutely on track in optimizing that. For sure, you see an increase between the first half of 2025 to 2026. But let's say, the development in the first half last year and the development of the working capital was quite positive, and we were able to optimize also here and to improve slightly our ratios that we have. So therefore, working capital transaction activities are on track, mainly impacted cash flow by additional tax payments, which did not take place in the first half of the year 2025. So therefore, not that somebody believes that due to the operational business, we are not able to generate any cash flow anymore. So this is absolutely not the case. We will come back and also our targets that we see with a straight operational cash flow steering and management will continue in that way for the second half of the year. Now as promised, getting back to the growth and the overview of the different segments, Pharmaceutical Supply, patient-specific therapies and International businesses. Here, you can see the quite significant good growth in -- mainly with 8.5% in Pharmaceutical Supplies, but also in the patient-specific therapies. So there, we are very happy that we were able to realize there in the first half of the year, a very good performance. You see on the EBITDA pre side that in the Pharmaceutical Supply, we are below prior year. This is mainly due to pricing issue with some specific products that we were not able to get this higher margin in this year on the Pharmaceutical Supply side. On the other side, when we go to the patient-specific therapies, it's always still on the half year, a little bit below prior year, but the second quarter was already very promising. And last but not least, obviously, the International business also developing here good with a growth of 6.9% in sales and a slightly better EBITDA pre margin in that year. As I already mentioned, revenue went up in Pharmaceutical Supplies, but EBITDA pre decreased. So that is obviously not the structure we like to see, but this is due to continuous price decrease on selected individual products, which unfortunately also we will see that this will maintain in the second half of the year. So there, we do not believe on a big recovery in that perspective. Nevertheless, I think we are, nevertheless, here on quite good track. And also compared with other wholesalers, we still have a good margin that we are able to achieve. Medicinal cannabis business already started. You know that from the presentation of the first quarter. It was a little bit later. So it was a delay in the first quarter, but it developed quite positive in the second quarter this year. So we gained the momentum. Unfortunately, with the now new law in not getting any reimbursement anymore of the cannabis flowers that will make the develop -- further development very difficult or more difficult in the second half of the year. But that, as Thomas said, is already included in our new guidance in there. Also, you have to know that nevertheless, cannabis is not the big revenue contributor still for Medios. Going to the bridge that we showed first time in the Q1 year-over-year. So you can see the major impacts are the EUR 2.7 million with the price drop of various products, individual products that we have here. Then we see a good development in new businesses like the Novartis and also the cannabis one. And on the other side, there are some operational expenditures increasing, labor cost increase, which are normal. So apart from this price drop, we would say business is developing okay, but the price drop, unfortunately, in that business, we cannot compensate here. Coming directly to the patient-specific therapies. Also here, the situation now and here, I would like to draw the attention mainly to the second quarter. So also those who participated in the call of the Q1 noticed that with there, we were due to several reasons, below expectations in the margin. Now the good message here is we are back on track regarding the growth of the business in terms of the revenue. So we increased from EUR 54 million in the Q2 to EUR 59 million revenues. It's a growth of 8.6%. So -- and that in this market in Germany, I think it's a good development that we have. Second, also here, and that is also what we promised on Q1, we -- the margin and the margin quality of these segments will come back. And here we are. Now we managed to get the 10.2 percentage point EBITDA. So Thomas already mentioned our Avanti Medios project also here shows the first good positive impact. And also, I just want to draw the attention on the effect that -- and what we announced that we closed the location at Aschaffenburg and the site of Aschaffenburg end of last month. So therefore, that will mean impact -- positive impact due to this, let's say, change in the structure is not yet included in Q1 because this just will take place in Q3. And that's why we are quite positive that the good development will continue in that segment, and we are absolutely delivering with our business here in Germany, what we promised. And our guys with our colleagues, with Christoph, they make a really great job to optimize the margin in the German market. In terms of our bridge, what does that mean? So we have here a quite positive volume impact, which is obviously helping us and which brings us the growth. The drug price regulation, that is this impact on the German Hilfstaxe. That is the normal, let's say, price impact that we have to compensate and we have to live on that perspective. On the other side, then there is also an increase in personnel costs and also some other costs still in the first half of the year. We were working on that mainly on the other side to improve the situation and also the operational efficiency and excellence will help us going forward in the second half of the year. So I think well done. Coming now briefly to the international businesses. Also here, revenue went up. So we are now at EUR 44 million. When you have a look at the Q2 last year, it's EUR 42 million. It's also here quarter-by-quarter increase of 4.8% in terms of revenues and sales. And also the EBITDA margin is with 17.5%, one of the best that we had. Obviously, it's not the best, but compared to the Q2 of last year, I think we were quite significantly improved. Also here, management and the people made there a good job. And also here, we know that on the terms of operational efficiency, we have already identified the activities to do, and we will work on that, that also with the Avanti Medios project, which is a total group perspective program also will then step-by-step show positive impacts on the next month to come. We know that there are some higher material costs, mainly with the eye syringes that we are delivering to our customers. And also these are topics where measures already are started to solve that issue and to improve here the gross margin in that product segment. Coming also here as a summary to our EBITDA bridge. So positive volume effect of about EUR 4.2 million. Then we had last year and this year, both 2 different disinvestments which we believe that for transparency reason, we should show that a separate impact. These were mainly sale of one pharmacy last year. And this year, it was the, let's say, the sale of a building that was not used anymore in Belgium, where we had extraordinary earnings, if you want to say it like that, of EUR 0.8 million. So still last year, more -- higher positive one-timers than this year if you compare that. And then on the other side, we have the known additional material costs, mainly talking about the eye syringes products. And then the topics like wage increases, which are the normal increases of wages that we have from year to the other year. You see personnel cost savings on the one side, that is correct, but it's unfortunately compensated by the OpEx on the other side. Why is that the case? Because currently, some internal planned people are not hired currently mainly on the pharmacy side and are used with external people, and these costs are shown in the other operational expenditures. And therefore, it's more, let's say, a change in the cost level or in the cost line where you can see that. Finally, we were able to increase here the EBITDA pre. We were able to increase for the half year 1, the total number, that is great. The second quarter was even a very good development of margin, and that makes appetite to get more and to develop further this international area. Last but not least, coming back to the Medios Group as a whole. You already know with the announcement that we made last week, that we say on the sales or revenue side, we developed quite good. So also here, our now revised guidance is a little bit higher in terms of sales than what we -- when we had in the first guidance. So we now say it's EUR 2.1 billion up to EUR 2.16 billion as our sales or revenue guidance. On the other side, and that is not our target, but due to the fact that we have these pricing issues mainly on the wholesaling activities in PS segment. And on the other side, the positive development of cannabis not coming in the second half of the year. These are major impacts also, if you want to say it like that, that we have to take down a little bit the EBITDA pre guidance margin from EUR 94 million to EUR 102 million, now down to EUR 88 million to EUR 92 million. You can see on the right side all the different reasons for that. I can assure that the management is working hard on really focusing on the Avanti Medios and make all the operational excellence activities happen this year and also for the years to come. But I think also here, that is the realistic guidance. So with that, I hand over and I give back to Thomas for the focus activities and the takeaways. Thomas?

Thank you, Stefan. I'm going to keep it really, really short. Nothing changed here with our focus activities. We have the One Team Medios initiative. We want to bring more transparency and collaboration in the entire group now also with Caelo, and we are using processes to do so, but we also use digital, and we will introduce SAP S/4HANA system at 1st of January for Medios Pharma. Operational excellence is key in that business that we are running. So we are focusing on capital master plan, business integration, digital road map. We get those concepts out. We want to bring that on a group level and make sure that we can lift those synergies we see when we have more transparency and processes that span all our geographies. We continue to accelerate our organic growth. We have shown growth in all business areas, and we want to keep it that way. We are looking for additional business with existing customers or new customers. And as we have done with Caelo, we are looking for selective M&A activities that are value accretive and add-on acquisitions or collaborations. It's important here to mention that an M&A starts with the integration plan, and those plans are already in the making for the Caelo integration, and I think we can set a nice piece there showing that we really can gain together going forward. We will talk about all this and more at the second major Capital Markets Day on the 29th of September. A good opportunity to see compounding hands-on and personal and also to network with the top leadership team for that. We also have a dinner on the 28th, and I hope all of you will join and use the opportunity to know ourselves, get closer together and also see what we do in our Breda operation in the Netherlands. Key takeaways I would like you to go and see is the broad-based growth we have in our business. So growth is there. We are delivering a market that likes our services. So that's very positive. We see first small, but still, I think, sustainable progress on margin in the PST business, more should be coming there. And we have now an acquisition of Caelo where we want to further strengthen our compounding business, where we bring additional services in Germany for the pharmacies, and we really have a broad product range that pharmacies will be able to buy from us. I think there's a lot of strategic sense to this acquisition, and I'm really looking forward to have a nice integration process starting as of today.