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

So welcome to today's presentation of Q3 results. I will go through the presentation as usual and then later on, we go into the questions you might have. That is the ordinary disclaimer. The Executive Board is unchanged, Jutta Ludwig for the Asian business, Frank Yeager doing all the IP product business from [indiscernible] and myself being responsible for medical as well the CEO of the company. That slide is known to most of you, and it basically demonstrated that it becomes more busier than ever. Every time we see each other here on a quarterly basis, there are more companies entering that field, either companies or smaller companies participating in the race of the production, manufacturing and marketing various pharmaceuticals. And I'm pretty sure that we will come also to our latest press release of yesterday which is in other cornerstone into that development. We are talking about gallium and I will talk about in particular about gallium because our generator remains the cornerstone of our business in the medical business. But no wonder actinium, lutetium and also our hot cell business, our engineering business is a very important contributor to our profit. Here you see some of our customers, those customers which we are mentioning in press release where they are mentioning for lutetium being our customers, actinium our customers and then contract manufacturing end of Q3. So for those who are the pitty point, in that you will realize that in actinium, of course, Telix is missing there because it was already mentioned yesterday. Our product chain remains -- the value chain remains unchanged. In the upper part, you see everything which we are doing in terms of our Medical segment and the lower part is a huge portfolio in the IP segment where we are contributing with different sources, imaging sources, measurement calibration towards quality insurance and the entire portfolio entering into the field of approximately 50% of Eckert & Ziegler's revenue. Now what are the operational highlights before I come into the financial part of that. First of all, we entered and we received the European approval to really marketing our GalliaPharm in all European countries. Then there are still countries where that was not possible and now that gives us more and more opportunities also for the European area, but then later on for non-European countries to become the broad and the most available gallium generating producing company. Then we have been awarded by Telix earlier in August this year to become for their prostate cancer Phase III study, the CMO facility here in Berlin facilities. Some of you have visited us here to have the first glance how that looks like. It is an important role also for the future because we do and we have invested into the CMO facilities and that is also for the years to come in more and more important factor of Eckert & Ziegler's profitability. And then also, we opened our big engineering hot cell facility in Dresden, a lot of press release and noise was made about that because it demonstrates that it is not only North America or China, or whatever, that also Germany can demonstrate its attractiveness for companies to go to Germany, to come to Dresden, to Rossendorf in particular, where also our companies, but other companies are also placed and more amount of companies want to produce in here in Germany, and we get a lot of also governmental, not financial but emotional support from the government here to make sure that Dresden and the environment area that is possible and can really execute what we want to do, namely to produce here I should hope for the European needs and our company, their [ITT] plays an important role in doing all the engineering facilities here. Now as I would also mention 2 other issues and to be precisely, that would then once again will show up in the entire year perspective, but Julian might be made it very clear that these 2 effects have a dominant role also for the Q -- for the entire performance we are talking about: a, is the spin-off which took place at the very first week of October and the spinoff of Pentixa, which is now a fully fledged independent company. You have received probably yesterday's Q3 result, which was published, but that was in the end of the combined company in particular, now it's separate and that's why that has become legally effective. And the other topic is very short. In order to mention that we don't forget about our license agreement, Telix in Australia for the production of actinium and that is an important milestone which both companies have achieved and I didn't want to miss here the opportunity to mention that license agreement although it only happened in November, i.e., in Q4. So boring slides, sorry for that. In the last time, you will see that, that is the '23 results full year's perspective. And then, of course, the change, but I want to take that as a starting point that isotopically 2/3 of the employees are here where 300 people are working for medical, that is more now being changing because medical is hiring more and more people and that's why that number will increase. You know that we are about 1,000 people, meanwhile. And also revenue-wise, these are numbers which are not valid for this year only for last year, but the important message is it is still 50-50 revenue and EBIT growth and participation and split between the 2 segments, demonstrating how important also the IP segment for the overall profitability of Eckert & Ziegler is. Now let's have a look through the Q3 results in more detail. Here, that is basically all you like to know or I would like to present to you net sales. EBIT adjusted our new number which we are using since beginning of this year and then also for those here interested in net income numbers at the very bottom line. So our overall sales performance was growing by 17% double-digit growth from EUR 184 million up to EUR 216 million by the end of September, that represents 17%. Now if you look to the organic growth or the FX adjusted growth that would be even 20% growth or even higher because of some headwinds we had with currency, we only reported 70%, but basically, FX adjust even higher. In particular, radiopharmaceutical growth 42%, I come to that later on, 26% prior year also for medical. That also for isotope products, we have 10% growth than prior year. We had a very strong first half year and then the second half year was as predicted, slightly softer but overall, strong performance for the net sales. And if you look to the EBIT adjusted, then here, we see even a stronger growth of 24% which you see here up to EUR 47 million by the end of September. And then also for those who are interested in the margin is going up to 22%. That is basically something which we wanted to achieve by 2040. So we achieved a wonderful result in terms of adjusted EBIT margin by 22%, 10% higher than last year, although we had some costs which we had to [indiscernible] some costs we had to writeoff and things like that. But the strong performance of medical exceeding here sales gross contributing -- contributed to the strong performance in EBIT adjusted. Now net income, I will also mention that is still difficult to understand because of the hyperinflation effect in Argentina, currency effect in the balance sheet and then, of course, Pentixa which we talk of. So it depends to what number you're looking like, you see the numbers here at the bottom. In Medical, in particular, 26% growth for the net sales, about EUR 100 million for the 9 months, first time that we exceeded EUR 100 million sales for the Medical segment and in EBIT adjusted 31%. So really super performance for the Medical result. Maybe have -- gross profit was increasing gross margin logically also then going on, although we had to increase our cost for our new projects, in particular, depreciation where we have now finished the construction of our GMP suite here in Berlin and other sites. So that's now by depreciation in these numbers already and that also higher personnel costs, but still the overall increase in EBIT margin is higher than the net sales increase which is important. Now normally, we always talk about the Generator business and that is here for 10 million in generators, super, but also in Dresden hot cell business increase in sales by EUR 5 million up, but also the others. The [indiscernible] radiotherapy and lab equipment those growing about EUR 1 million compared to last year. So overall, good results for the entire Medical segment. In the isotope product, we also are about EUR 100 million, increase by 10%. And due to the extraordinary strong increase in gross [indiscernible] due to the good product mix there was almost 30% growth increase from EUR 19 million to EUR 25 million this year and if you look to the EBIT adjusted margin it's up by 22%. So basically, I jump one slide back here, 23% for Medical, 22% for IP in this particular period of time, which is really a good result. We mentioned that the first half year for IP was very good starting and then softening a little bit in the second part of the year. And then you see here the hyperinflation effect in the lower part of it. Now if we want to compare why we do report adjusted, non-adjusted EBIT, there are some effects. These are currency effects and financial results and of course, the hyperinflation effect. That's why if that is taken into consideration, EUR 46 million for the first 9 months of this year compared to EUR 10 million lower EUR 37 million of last year. That is where the EUR 10 million increase is deriving from. Looking to the regional split of the countries. Europe, basically unchanged, 1/3 of our overall sales are coming from Europe, whereas 50% of our sales are generated in Americas, particularly, of course, North America, particularly the increase of our generators here, so a strong demand also of our higher activity generator. For those who are more in the product portfolio, we have generator 50 millicurie and they have a stronger price as high generator 100 millicurie, and there is a strong demand because the ongoing imaging procedures and the increasing amount of procedures are triggering then a higher demand of generators. And without giving out too many details here and talking about all the products, which is boring for you, already by now our order book for the first months of next year is completely full. So production is running at its full capacity also for the next year already. Asia increased here on a low level. That's why sometimes it's increasing double digits, then it goes little bit down. So it goes up and down in a higher variety and fluctuation. But overall, it represents a double-digit participation of the overall growth, and that is due to the China effect [indiscernible]. Now here, you see the extrapolation and the development of our radiopharmaceuticals. Radiopharmaceuticals are our isotopes either in bulk or in generators, coal kits, but also the engineering part which is also included there. And we do anticipate a sales of EUR 150 million by end of this year, which represents a growth compared to last year of 36%, and we are not showing any longer the inorganic growth of Tecnonuclear which took place in 2021 and 2022. So it's all now incorporated completely in our growth story. If you have quarter-by-quarter, then you see here the performance of the individual quarter up to Q3 of this year. And then Q4 is of course missing. Balance sheet, how does the balance sheet look like? We have increase in cash. So normally, we say last time, I think, when we met it was 70 minus 20, now it's almost 100 minus 20 [indiscernible]. So our [port money], our cash funds are quite filled up again, which is good because we do want to invest into our facilities and that's why cash is king in particular of increasing interest, it's good that we can finance all our activities out of our own purpose and the rest is relatively unchanged here. So no big change compared to last year. The -- our key performance indicators, key figures if I mentioned already here, 20% growth in our EBIT adjusted, so EUR 10 million more than last year. Cash flow, strong increase in cash flow investments, not so strong so far, more to come, and we might talk about that. Cash as I mentioned, EUR 100 million. Loans, we paid -- repaid a little bit of our extra loans, equity ratio above 50% and headcount increased by 7% by 1,100 people so far by the end of September. So here, once again, the key numbers mentioned again, I skipped that one. And the outlook, now that is probably the triggering point of our discussion. We have, as of today, not changed the guidance. For the time being, we want to keep it here as there is only 6 weeks left, but we will talk about that in a couple of minutes. What is happening until the end of the year and beginning of next year. So for those who are interested to see where Eckert & Ziegler will show up, there is a conference call later today with [indiscernible] and then next week it's Jefferies and then the [indiscernible], and then we have the other conferences, including the quarterly reports of Eckert & Ziegler throughout next year, including the general meeting which takes place here in Berlin on June 18 of next year. Thank you. That was my presentation. Normally, I try to stick within the first 15 months here to demonstrate and present the story. So we do open the floor for all kinds of questions. Please use your electronic hand for whatever you want to comment or to ask about and then together with the help of my colleagues we will go through one by one through your questions.

So who is first? So I see the first question from Alexander [indiscernible]. Alexander please.

I think maybe the first one on generators. You showed the number as of 9 months, the generators have grown by EUR 11 billion top line. I guess the question is, what is driving it? To what extent is it driven by the CE mark that you have received? Or is it still that mature markets require more generators to accommodate larger volumes of imaging? And I guess how much dynamic you still see in this business going maybe into the next year? That's the first one.

Okay. Wonderful. Basically, it's a mixture of various components. The newly granted received CE mark is not really playing a substantial influence in that sales growth so far because of 2 effects. Most of the countries were already covered with generators. So it is all due respect to countries like Bulgaria or whatever, now being entered and added also to our list, they will not by tomorrow order 100 of additional generators. So it is important that we do supply, but then by finding our distributor or whatever. So the CE mark will play a role in the next year than this year, a. B is that we are selling generator for commercial use, for radio pharmacies, for hospitals, for clinics. But we are also selling generators for pharma companies which are used for clinical studies because they are using our generator for new compounds being then entered into the market later on once the product has achieved commercial grade and market authorization. These generators normally are sold on an individual basis on a slightly higher price than if one radiopharmacies orders fifth generators on spot or has a 3 years contract. So that's why we have not only a volume effect, but also we have a price effect which helps if we sell some of these scientific, so to speak, generators that is at a slightly higher price. And then finally, the most important topic is the U.S. market, where we see an increasing demand in generators because if you look to our competitors, the gallium competing compound which is F-18 produced by [indiscernible] they have unbeaten success. But also if you look to Novartis and Telix, which their sales numbers of their compounds, both imaging and therapy that is an increase and even you have also seen that the reimbursement topic has become quite comfortable for those companies also in the time to come. So increasing demand of therapy means increasing demand of imaging, means increasing demand of generators. And that's why even sale of purchasing one generator by a pharmacy once a year, they continue to purchase one generator a year, but they have doubled the amount of quality by purchasing a generator twice as high and also if we see price, which is higher than the ordinary run, sort of GalliaPharm 100, of course, has a much higher price than the GalliaPharm 50. So here, we have volume and price effect in the North American hemisphere. Now the outlook for next year, I continue to see that countries like Japan, small market but high price, China, big market with lower price, are countries, big, important countries to be added to our list of countries being supplied with generators. To what extent we will see real numbers already by next year, I doubt that, that will happen an important influence because the registration procedure is complicated, that will only happen by '26 to substantial intangible effect. But there are other countries, more countries which are added, and that remain extremely positive also for the Generator business. And when we come in March next year for the outlook of '25, then the Generator business will continue to play an important role for the overall performance. Okay. Then I take Lukas [indiscernible] for the next question.

I have just one question relating to Telix announcement from yesterday because I was a little bit surprised that you now also do such license deals in terms of isotope production. So can you share a little bit of your thoughts on strategic side from Eckert & Ziegler going forward or in terms of this kind of deals? And if we should expect more deals like that?

Okay. Yes, yes. I think it's not a contradiction to what we have always said because if we now speak to pharma companies, then they have a demand which nobody can fulfill. Now what can a pharma company do, they can also sit -- only sit in their corner and wait for companies like Eckert & Ziegler and others to start producing and then do it and failing and do it again and being smaller or bigger, whatever. So a lot of companies will go that way because they do not want to enter into the field of own homemade isotope production. Telix is one of those companies who have chosen another way, they want to be on one side, independent from other suppliers, but simultaneously, they need also to supply in order to be sure that in case their own production fails or it's not as effective or whatever, whatever might happen that they have the second supplier. So basically, what companies like Telix are saying, we need both. We need a supplier and we need someone who helps us in setting up an own production facility. Now if companies like Telix knock on my door and ask for both options, then the Americans might say it's doubled it. We are happy that companies are using on the short time, they have a license agreement. On the midterm, we remain a supplier of Telix also supplying them with actinium in double sourcing strategy and also on a short-term scenario. So that's why that deal is quite attractive for us in getting cash at the very beginning for a license [indiscernible] if we don't do it, they might have chosen someone else doing that for them. So better I do it than someone else's doing it. And then simultaneously, we remain isotope producer for Telix and others. So very attractive and with Telix in particular, we have a long, long-lasting relationship. You know that they also took over our site in Belgium and [indiscernible] which we are not using anymore and we had a deal some years ago where they took over that business and there are other cooperative activities where we jointly do things together. I mentioned our CMO [indiscernible] and also lutetium supply and others. So that's why it also fits to the same strategic [indiscernible].

As part of the question, should we expect more of this?

There is nothing to announce as of today. But if Telix is asking for the same topic once again, the most to ask, can we have a lutetium line in-house? Or should we ask someone else doing that, I would probably not deny it. If you ask me, will we announce a second license deal by tomorrow, the answer is no.

What in the next months and quarters?

Yes. It always takes two to tango, Lukas. And if I go to the nuclear conference in Hamburg, then everybody tells me I need, I need, I need. I need it now. I need it tomorrow. I don't want to pay for it, but have -- you have to do everything on your own risk. And that is something where for various reasons, we say we do whatever you want, but we don't pay you the [indiscernible]. So there must be a risk-sharing approach and we are discussing these ideas. In the old days, it was called public-private partnerships or something like it. So we are happy to discuss it, but also for big companies, money is a high valued good. So it's not [indiscernible]. We might continue the discussion, but it's not unlikely, but there's nothing now I can announce you. Then I have -- if there's no more question from Lukas, then I go further on to Nicolas.

The first one is probably a yes or no question. But on the GalliaPharm 100, are we to assume that it's higher profitability that lower version or it's kind of the same?

Yes.

Okay. Great. And next question, I think, is on CapEx. I think last time we spoke, you mentioned that you will have slower than anticipated CapEx. Where do we stand as of today? And do you remain with the statement or [indiscernible]?

Also, yes. Also, I mean, like the French, you want to have yes to it and you're asking 2 questions. So you can choose which yes you take for which question. This is [indiscernible] down process because we are starting our actinium production in Park by the end of the year [indiscernible] and then later on, we do click the button for our own production. But first, I want to have the proof of concept and then things like that. That's why it's a slight detail of starting point in these big investments. So it is yes.

Okay. Great. And maybe a last one that is more broader. We are starting to see that there is a lot of excitement across alpha therapies and so I was wondering if you could maybe elaborate on what's the let's say, decision-making strategy that will say we need to invest into a new isotope and maybe start developing lead generators, for instance, how do you think about new opportunities and what's the, let's say, this year [indiscernible] that you take?

Yes. So if you go to a commodity, if someone asked me to produce or to set up a new production line for Y-90 which is a commodity. It is a no-brainer and if I get the money, I do it by tomorrow. And then if you go to the more advanced one and to the extreme advanced one, I can also do whatever customer wants me to do. But the more we look into the future, the higher the risk gets and the higher the risk is, I want my partner to step in. Now if you particularly asked about lead, which is beyond actinium, then considering the extremely short half-life of lead, so there are a lot of technical issues, which have to be handled which we have a cooperation with our buyer in our Boston facility and we are also talking to others. But the more you go into the future, the higher the risk part of the partner has to be. In other words, we do that, but then the financial commitment has to be very good. We see [indiscernible], do I spend now a lot of effort into lead, no. Do I spend a lot of effort in making sure that our actinium product is [indiscernible], and even looking actinium, the latest forecast is that not before '27, Pharma will enter the commercial field that, so is 3, 4, 5 years expected before we see substantial tangible actinium sales. And then on by 2033, we will have here in that field, a blockbuster area. Now for lead, I will have lost all my remaining here [indiscernible]. So Alexander, I think I interrupted you before, you wanted to have the second and the third and the fifth and the tenth question. So once again, back Alexander.

Yes. I have a couple left indeed. So maybe on the Telix licensing agreement, I think it mentions in the press release that you also are entitled to access to a higher availability of actinium. Could you just elaborate what that means? Does it mean that whatever Telix is producing, but is not needing for their own needs you're allowed to market? Or how do you interpret that?