Eckert & Ziegler SE (EUZ) Earnings Call Transcript & Summary

Hello, everybody. Good morning or good afternoon, wherever you are. Depending on this, this is the discussion of the Annual Results of Eckert & Ziegler Annual Results of 2022. I'm Andreas Eckert, the CEO of the company, and I'll lead you through these wonderful PowerPoint presentation. And following that, we will have a question-and-answer session which will not be recorded, but this presentation will be recorded. And I think then [ Karolin ] will put it on the website as well as the charts, which you're going to see in a minute. Before I start, I put my glasses on. Okay. For those just what's the topic here. We're here in radiation, radioisotopes. Eckert & Ziegler is a specialist for radioactive applications, basically separated into columns: Radio Isotope Industrial Applications, Measurement Applications and Medical Applications. And the third segment, which we have we call a Holding, are miscellaneous. That's normally where we put our development things. We finished the year here with EUR 222 million in revenues and almost EUR 30 million in net income. The growth boxes were radiopharmaceuticals and to some extent, radiation sources, and I'll show into that. And at the end of last year, we were 980 employees, roughly 1,000 people, 18 sites worldwide. And many of you who follow us are familiar with these charts, there are big changes. If you look on the way how the -- revenues breakdown, you see our main business areas are Europe and the Americas. Asia is catching up, but the fact that we are. Let's say, a Western Hemisphere company on that. We are in the middle of an expanding specialty pharma market. I'm not going to go into that. We have all these projections that the growth will come, will be there in the coming years. Of course, we like that. You see that there is some -- quite some ambitious projections out there. And as a final chart for the macroeconomic environment, we still have some exogenous challenges. They seem to be less than they were a few years ago. Corona is over, more or less, China is somewhat open. The Ukraine war, of course, still affects us and inflation is heading up and interest rates rising. So these were the preconditions of 2022. Now let me just step into what I call the essentials. The essentials always initiate how deep do you want to go or what level of, when you lay a degree you want to go to, if you want to start very much on the top 2 pictures show it all. 2022 was a rather successful year for us. We upped the revenues by 23% up to this EUR 222 million. You see here the whole trajectory in the last 200 years, which we have come up there. If you just look from the revenues to the net income side up here, you see that in the 2022, we were with our almost these added EUR 30 million, not as successful as we have been last year, but you have to take into account that last year, we had almost EUR 9.9 million from a one-off event, the sale of our HDR division. So if you check in the slide, you can put a pretty direct line here from -- our 2014 results of about mega EUR 7 million to now EUR 30 million. That's almost 4x where we have appear more than that, it's an annual growth rate. On the net income side, of 20% a year. If you -- not the digital type but more of the analytics, you have some numbers for the last year. We have really spectacular revenue growth on a nominal basis. The revenue is 23%, important product categories we come in Isotope Products or Industrial segment, 36%. Radiopharmaceuticals, including SPECT, we are up say 37%. The revenues in the Medical segment, as opposed to the Isotope Products segment are not up that much. I'm going to come to the reasons very shortly. If you look at group profits, almost 20% more, if you adjust for the one-off net cash, we're still enjoying a net cash of about EUR 60 million. And we also have a number of material progress events, which are not reflected yet in the numbers, but which lay the foundations for future growth and future earnings. Okay. Strong growth revenue-wise at Isotope, that's the IP, we call, Isotope segment, well, also you sometimes you refer to it as an Industrial segment, you see up here, 36%. It's a bounce back to some extent from Corona and some other factors, very spectacular. Everybody's envy is for 36%. On the Medical, we only have 7%. Now the reason for that is medical-device are still the sale of our HDR division has not been completed or was completed in 2022. So compared to the previous year, we have still some divestiture. We basically lost revenue because we sold the business. All others, except for the HDR look positive, and that's the key behind the low growth, which we see on the Medical division. The Radiopharmaceuticals, which we define as bulk rate radioisotopes, Yttrium-90, Lutetium, Actinium-225, Gallium and technetium, contract development service and contract manufacturing service and radiopharmaceutical production equipment. We have a nice trajectory here. We had a real jump this year mostly because we added here a technetium producer in January 2022 to our group, mostly but not only. So we see up here in our core growth area, exactly what we want to see. And if you break it down a little bit, you see here the attributable radiopharmaceutical revenues attributable to the Medical segment, the blue one. You see you have an increase in every year. And then some of that revenues are also attributable to the Isotope segment in orange, and they really make for the steep increase and the factor, that's the addition of our Argentine acquisition Tecnonuclear in January. If you look just on the isotope revenues, you see that here again, there's the Tecnonuclear acquisition, which brings a spectacular from 140 to almost 140 up there. If you take away the corona gap 2020, here, you have the whole revenues of the Industrial Isotope segment, you see it came up here. That is actually to us, the main reference point, 2020 and 2021, we saw the impact of corona. I think we're back now and there in our Industrial business, we are back to normality. It is as you say, it's not a very dynamic, has not been very dynamic in its core business. Only through acquisition, we have been able to grow there. And on the core business itself, we're back to this 3%, 4%, 5% of average growth. Looking into profits. If you look at adjustments for the one-off, the sales of the division in 2029, you would find that we do have quite a spectacular growth. You see the IP segment, EUR 12 million in '21, EUR 15 million there. So we have a growth in that, a phase of rebound of corona. 25% in the Medical division; 14%, others. We have increased like the loss, so that should be a red one. But anyway, you see, if you just take the operators, once we would argue that the core of our business, the operator, we are -- have a strong growth in net income, if you adjust for the HDR one-off, which we had at 2021. The long view here for everyone. We've coming near to 10 years from 2010 or 11 years, it is. You see that we are here at EUR 3 million and EUR 6 million, EUR 9 million, now to these numbers, EUR 15 million and EUR 16 million. If you exclude the Holdings segment, which carries a number of development activities, which unfortunately in the beginning only burn cash or only burn profits, but the core business segments here, you have the industrial one, which is large and cash-generating, but basically on a low growth path and there you have our Radiopharmaceutical driven Medical revenues coming up here after the peak in last year. Still higher than what we had in 2020. So that's the overall development, not a surprise if you followed us through our quarterly results. But nevertheless, nice to see, I hope, in completion and in a long-term perspective. Coming to the balance sheet, you will see actually strong balance sheet we call. We like to call it a strong balance sheet because we have a strong equity ratio and net cash, our debt up here, EUR 22 million. And you see our cash EUR 83 million. So that's the right balance we have up there. If you look at 2022 as a whole and underlines the balance sheet, you will see that we have asset growth all across our segments in the IP segment from EUR 185 million to EUR 210 million. Total balance sheet, EUR 124 million to EUR 151 million and also others. So the growth is across all segments and assets. And if you look a little bit more fine-tuning, you will find that the non-current assets are the ones who have been driving the growth in all these segments. We grew non-current assets there almost 40%. This is typically by buying companies, building buildings, intangible group and these kind of things, there is where the growth has been in this year. While current assets, which are related to business volume itself, like liabilities and accounts receivable, accounts payable also, well it's a bit stagnant. So all the growth which you have seen in our balance sheet is basically driven by non-current asset. And if you look now on not just this 2022 versus 2021, but to go back 1 year, you see that we had this also the previous year. In fact, our non-current assets have more than -- have doubled pretty much, EUR 116 million, EUR 117 million in 2 years. And that's a spectacular development for our company. It means that we are investing very heavily in new facilities and new projects, and we're kind of here in a transition period to make that companies from what it used to be 3, 4, 5 years ago into something new. And the best place to visualize the development is, in my opinion, the balance sheet. We have announced that this non-current asset growth is part of our long-term strategy. I have here picked up the chart from last year's annual account. Discussion there already added that we will add another EUR 65 million by the end of 2022. But yes, it could be EUR 50 million -- EUR 53 million. So not really the EUR 65 million, but you see this is what we set out a few years ago to really change the company. And we did the 2021, we have it here 2022. I'm back to that, basically to complete a global infrastructure. For all the delivery of 80 pharmaceuticals. And many of you have followed us and know the topics which we have out there. We have these Chinese buildup. We're building up here. The –Wäscherei called here in Germany, we have actually also Berlin investment things. We bought Tecnonuclear as a factory. We up the states with the small suppliers, technology-driven suppliers of raw materials for end. And I think we're coming -- we're making good progress in that field. And 2022 has been a year where, on surface, you don't see much. You get a bill here and there and they cut a ribbon but we're progressing well, I think. One issue which comes with the growth of your asset base in such a dramatic speed, I mean, doubling your non-current assets in 2 years, is that you're not just blowing up your balance sheet, but there is a lot of expenses which you cannot capitalize. I mean you have to have additional staff. In our cases, we're building in China and Boston and Berlin, –Wäscherei, and I probably lost or forgot something. And you did you just add people which you cannot capitalize there. You have contingency costs because you need staff to be trained. So you have to have a whole team, for example, in Boston there, and they can't start like on the first day when you have revenues, they will start, of course, before we can set to practice and train and validate. We also have a non-capitalized growth here on Pentixapharm, our clinical development arm. Now that is not unusual, but I want to point it out if someone raise, why aren't you there in the middle of a growing market? And why do profits or thing not come up like this and that? One answer is also that we do have a lot of additional expenses associated with the asset, non-current asset growth. Our estimates, at least in terms of net income, we are at least EUR 3 million in 2022. And also in 2023, coming forward, we expect these implementation costs to hit us hard into a large extent. Which explains a little bit the thing which everybody is interested in, not what has been, but what will be in case around. Now that's our guidance for 2023. The model has been here, careful as we are not worse the core than 2022. You see our core business this year, we'd made 31%. Next year, we said we're going to do also 31%. And the reason why we are staggered up here is hidden in the Industrial segment, up there, while the Medical segment there, that's the usual thing, the careful not too much and so far thing. But the Industrial segment, that is the one here where I think I will find some avid listeners here in our presentation. The Holding and the other things, we are coming into -- we have green lights now from regulatory agencies to start our clinical trials. And until now, we could capitalize some of these things because we have buyback categories where the likelihood of success is for pharmaceuticals rather large. It concerns the diagnostic once you do the couple of patients and the thing glows, you're pretty sure that glows also for the others. It may be different for therapeutics. But for diagnostics, and therefore, we have been able in the past to capitalize it. We won't be able to do that next year. So therefore, we're anticipating that our loss in the holding or other segments to increase. And that's the usual thing, which brings them down our total -- if you want, our total profitability, but the core business here is pretty component that we will do at least what we did last year. But we do have some industrial issues and that's the typical German Angst. One thing which caught us also this year is that we have a very nice business in SPECT on Argentina, but the IAS29 adjustments which we have to account for add another EUR 1.1 million to the hyperinflation. And it's -- it's the problematic questions because we are subject to these rules, but we're not really sure what it means. Because formally, we need to do it, but our actually cash position in Argentine Pesos is low, because we bill mostly in Brazilian real and U.S. dollars. Nevertheless, if you don't know what's coming, you're better a little bit more cautious, and that's why I put the item into our guidance. And the same is that we do have an interest rate timing effect with raising interest. So, if you look up here, EUR 2.2 million on non-cash items are included in the [ 2022 ] through guidance in the Industrial segment. And that basically makes us a little more cautious to say, okay, we may not be as successful as we have been in 2022. There's also on the Industrial side, contingency costs, which we have in the 2023 guidance, we're building a new building in Sao Paulo, and we're building in Dresden-Rossendorf, a place where my colleague Harold at the moment is sitting and watching us there. Apart from all kinds of inflationary pressures because we see, yes, we grow, but we also see costs going. And in a nutshell, that's the basis for our guidance. It's a conservative guidance. But at the moment, that's all which I can offer. So liquidity to put up the EUR 60 million could be more, but isn't bad. And that concludes more or less my discussion of numbers. And before I stop and give you the floor for questions and answers, some material highlights, which I find is important to 2022. We have this big, big topic. I can spend hours talking about them, but at least I want to touch on them. One of them is here, Argentina SPECT specialist has really added to our technology base. You won't see it at the moment, but what we do is we extend the portfolio. We're building up and export business there from Argentine basically on SPECT sales. What we very much like that the -- due to the macroeconomic situation in Argentine, they have to be very autonomous. They have a broad portfolio of cold kits more broader than anything else we have seen so far. Because in Argentina, you can't report that easily, so you build everything by yourself. And we are using that to build the technology to basically go after seen from Argentina after exports markets. That brings us fine there. We have a big project here to get into Alpha. It's converting Radium to the 6 and to actinium to the 5. It's usual stuff you do, you announce, you cut the ribbon then for years, nothing happens, but builds a tile up. I can just report, it's progressing well. We have encapsulation task now run successful. The first hot runs are eminent, but these we're selling the GMP seats. It will take us for a while, but just for anyone who's following us that is actually working fine. In China, just for you, we have these pictures here, the usual picture. Chinese there and who followed us a couple of months ago was a greenfield. Now the greenfield, the basement has been built. We have some key document approvals, very important. And the corona travel restrictions have receded. We're quite happy about it. In fact, [indiscernible] my colleague is now here for the first time again, touring China and seeing what to catch up with the development there. And the construction site of course. And then we have finally amazing progress also with Pentixapharm. Amazing in such a way as we have started last year there to focus on getting a clearance for the pivotal Phase III study with Gallium-CXCR4. It's a diagnostic. We have this clearance received now. It is for marginal zone lymphoma. And that's long announced thing, but those of you who follow have also seen that what we kind of discovered a different continent and that different continent is away from oncology into, and almost surprising opportunity that is hypertension. And some of you have followed that may have seen here just a few weeks ago, we had a key -- came out here, a large study of accuracy of Gallium-68 Pentixafor, it's our compound or the sub-typing of primary aldosteronism. That is a Chinese study with more than 100 patients. And in conclusion, they say that the Gallium-CXCR4 is a perfect diagnostic for to -- basically what's the English word? To stratify aldosterone patients. And that is important for us because it shows some absolutely fine thing that the focus on oncology is superseded by a much larger and more interesting opportunity in hypertension. Hypertension is a disease. It's a mass disease. And while on the oncology side, we are more or less into specialties in kind of lymphomas and leukemias, nobody really knows and which have more on the orphan drug side. Here, we have a mass market with basically billion of potential patients. Because we -- billion, not millions, hundreds of millions, because you would always come to the point where it affects 1% of the population. I saved you going through all of that. But once you follow us, you've seen it in men's, it's problem is hypertension. You can cure it. If you want one origin is the malfunctioning of the adrenal glands. They secrete too much, adrenal, and that gets you out of the equillibrium. Now you could, in many instances, help these patients if you just took out one gland, because not always both glands are malfunctioning, but only one. You need to know, is it both malfunctioning or one and doing that today is a very bloody complicated procedure and it comes out more and more that we do have a non-invasive diagnostic here, which we may say that, and we are optimistic that this is a big opportunity. And for us here, the total addressable market is -- it's a $1 billion market, definitely. We have clinical assets there, which are really Phase III ready in about 12 months. The study which you've seen there, the Chinese one, we also supplied some of the compounds there. It's an investigator-initiated studies. We have more investigator-initiated studies running in the indication of primary hyperaldosteronism. One very face in Holland, the Casper study. There's also in France, studies running on that. We have a CMC part and supply chain or the commercial phase established, and we have ready-to-go lights for the same compound. It's Gallium-CXCR4 in the lymphoma area. That's what we have meant here with complementary clinical strategy because this year is the same as that. We just changed the indication. So in a nutshell, are we looking for co-investments on there? We probably will try to develop that together with somebody. And we're all very excited. And therefore, 2022 has been a great year. I thank you all for your attention and look at the clock, I spoke too long. And yes, I open the discussion. Thank you.