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

Good afternoon and good morning. This is Harald Hasselmann, CEO of Eckert & Ziegler speaking. Welcome everybody participating in today's investors earnings call. It's 3:00 Berlin time, and that was the time for the invitation. So I welcome everybody. And for those who are familiar with the practice together with my colleagues here, in particular, Karolin Riehle taking care of the entire organization and also the Q&A session. It's also Julian Schröder with me, responsible for finance and controlling here. So that should be the team answering later on the questions you might have had after my presentation. I'm going to share with you for the next 20 minutes and then we will enter to the second part of today's session, which is in taking up your questions. If you have any questions, it would be good. If you then later on raise your electronic hand, that gives us the opportunity and the possibility to see who is in line here coming up with a question. So let me share the screen with you, and I ask everybody to put your microphone on mute. Hopefully, you see here this slide. That is our building. You know that we have -- this time, we have 2 disclaimers. This is the normal one, which you are used of. The second one is that by April, in a couple of days, due to the ESEF tacking the official statements, the financial statements with all the approvals will be published. So there's a slight delay in the final stamp that has basically no effect of today's numbers being presented. The team, Gunnar for operations and Medical, Frank Yeager for the Isotope business, myself there. This is this slide and for those who are comparing it with the slide of last time and the previous ones, you see that this slide gets more busier than ever. And that is a good signal because despite of all economical challenges which we are facing, Radiopharmaceuticals is continuing being an increased business. Also, our list of competitors is increasing. So if you have a look here to this slide, in particular, those where we are focusing on for lutetium, actinium and our increasing business of contract manufacturing, all these slides are becoming more crowded. You can follow on our press releases. Those companies who have been willing in being published on that cooperation in which we have entered together with them for lutetium. You see the latest one was AtomVie, but also GlyTherix for Actinium has been at Actinium Pharmaceuticals and then also the CMO part, you see with Bicycle being added compared to the previous presentation. Our business concept -- business model remains unchanged now for really a long time for more than 30 years. It is both the industry part and the pharmaceutical part. Pharmaceutical part is up of this slide. The industry part is on the lower line of that slide, where you see here. Let me put the laser. So here, that is the industry part and this one is the pharma part. The latest highlights of Q4 of last year. Julian has picked 3 events. One was, of course, very important, the production, the initial ignition of our actinium production with our partner in Czech Republic. Then also our lutetium, product Lutetium-177 with the brand name Theralugand has been approved by the European Commission. So followed by individual country-by-country-approvals, it can be now sold as drug in all these countries. And then we have had the license deal in Q4 for the tech transfer with the Australian company, Telix. These are some events. Now looking to the full year's numbers of last year, you see that at least in terms of revenue, it remains a head-to-head race between Isotope Products, the green one, and the Medical business, the pharma business, 50%-50%. And in terms of profitability, which you see here on the right part, then the revenue is equal. But the profitability is higher in Medical with less staff, less employees, we are generating, an EBIT adjusted of EUR 40 million approximately, which you see here, EUR 40 million adjusted and EUR 30 million in the isotope business. Let's look to the numbers with more details. Revenues increased by 20% from EUR 246 million to almost EUR 300 million in last year. So this is an increase of 20%. And for those who are following us now for the last year, you have recognized that we changed from net income to EBIT adjusted because this gives you as a potential investor the possibility to compare apple to apple. And there, we see a strong increase in profits by 40% up to EUR 65 million of last year. So that is approximately EUR 20 million more, and that enables us also to have a margin of more than 20%. We always had 20% the hurdle, the benchmark we want to at least to achieve. Last year was extraordinary good, and we achieved 22%. Here, the net income is more complicated because it's with and without our continuing operations, i.e., Pentixa and others. So that is just for information purpose. Looking into the 2 segments, that is, of course, more interested for those who are interested in the product. Portfolio of Medical. There, the revenue increase was almost 30%, 29% to be very precise here, up to EUR 150 million almost. Most of that increase was generated by a strong increase, a, in our gallium generator, but also in engineering, our Dresden company, ITD also contributed to an increase in that sales performance. So really, an outstanding year in the Medical business. And that is also then reflected if you look to the gross margin. There, we have almost an increase of 60% from EUR 25 million to EUR 40 million. That is the increase in the EBIT adjusted. That is good because that enables also us to generate cash, which we will need for further expansion. You see the reasons here, what was happening, gross margin, the increase, and that is basically to the -- both the price effect, but also then to the actions, which I just mentioned. Net income, I will only report here for those who are interested. Isotope Products, the other also a strong increase. Normally, we say that the isotope is growing by GDP, global GDP. Here, we have had a double digit, also EUR 150 million, almost a strong increase to foreign exchange adjusted by 30%, in particular, because oil well logging. Our sources -- our oil were logging source were stronger than last year with 71% compared to the previous years. But also in other smaller areas, life cycle management and strong sources as well as SPECT business that is the technetium generator, a strong increase here in that area. In terms of profitability, also uptake from EUR 25 million to EUR 31 million. So that is the gross profit, was increased due to the stronger sales, but also to the product mix. A strong product mix is supportive for that really extraordinary result for my colleagues in North America. Looking to the bridge from the normal EBIT to the EBIT adjusted. We have more lines here, which could be filled up. But if you have a look what really happened, then you see that is the EBIT reported, EUR 35 million. And then there were some adjustments to be taken, in particular, some impairment losses, which we took care of. So if they were readjusted, then we come to the EBIT adjusted of EUR 39 million compared to last year in the Medical area of EUR 25 million. In the isotope business, I want to point out here the hyperinflation topic, which contributes to an adjustment of EUR 2 million compared to EUR 1 million in last year. That is the Argentinian hyperinflation, which still causes troubles and is very annoying that we haven't get rid of that yet. But I'm confident that, that number will be slower in the year '25 due to the economic recovery process in Argentina. So here, you see then the overall adjustments for the entire group, and that is added here, and that leads then from EUR 60 million to EUR 65 million basically because of the 2 action items I just mentioned. If we go to a regional split. So what's happening here, we have had a double-digit growth in Europe. Europe represents 36%, 1/3 basically of the entire revenue, whereas Americas, North and South America are taking 50% of the entire revenue of Eckert & Ziegler. And here, in particular, of the growth momentum of the generator, but also in South America compared to last year, we see a good performance in the sales revenue. Asia growing by 30%. I think if I recall correctly, last time I reported this number, it was also double digit, but only 12%. So it's increasing. It's now 40%. Asia represents really a good piece of the entire pie here of the entire cake with 40%, and that is mainly coming from China. Middle East, still low, it's growing, but it remains a low part. Our Radiopharmaceuticals business, that is the composition of the various isotopes, Y-90, lutetium, actinium, the gallium generator but also the technetium generator, but also increasingly contributing by CMO activities, contracted CMO activities and also our ITD business, the engineering part. Strong increase from last year, EUR 85 million to EUR 125 million, so 50% increase. Basically, now we can say it's purely organic growth because the acquisition of Tecnonuclear, which you could have seen here is already 2 years ago. So that's why that growth was purely organic growth. Here, you see the quarterly split, in particular to point out that Q4, extraordinary high. That's why all in all, 47%, but also due to a very strong quarter in the last year. The balance sheet. How does the balance sheet look like? You might have a look to one item, cash and stocks, important, then receivable and inventory remains basically unchanged to the last periods. Loan, we have continued to reduce our loan is EUR 20 million now. So that will probably go down a little bit further, but there is no need now to cut all the loans away because the interest rates basically which we are paying is in the same range of what we are earning with our cash. So this doesn't make a big difference. But if you deduct EUR 20 million from the EUR 120 million, then it's a net cash slightly below EUR 100 million. Overall, a long balance sheet with EUR 440 million. You see the split here. Fixed assets, of course, this is all based due to our investments. Let's have a look to the KPIs, the most important KPIs. I mentioned already EUR 65 million last year EBIT adjusted. Cash flow, a strong increase, up to EUR 77 million. Cash, I talked loan. Equity ratio still above 50% and headcount stable with around 1,000 employees worldwide. Now most important, how does the outlook look like? Here you go. The guidance for this year will be an increase up to EUR 320 million and EUR 78 million EBIT adjusted. Those who were looking to the numbers, which we are floating around in autumn of last year, that was basically in the area between here and there. But now we have a super result of '24, and we are also very confident that in '25, the growth will continue. That's why as of today, our guidance based on a specific U.S. dollar-euro exchange rate should, at the end of the day, come up with EUR 320 million. And you see the split, how the profitability, the profits are split at EUR 50 million by Medical and EUR 30 million by the isotope and the rest is here the holding with minus EUR 3 million, adding up to the number. So this is in a nutshell, the -- as of today's status. For those who are following up, the next big call will be May 13. So hopefully, it's not a Friday with the Q1 report. And then there are lots of conferences organized by various banks, including Hamburg and Frankfurt, but also in New York. And for those who are interested in our shareholder meeting in June 18 here in Berlin, you are more than invited. Thanks very much. I stop here now sharing my screen, and we'll then open the floor for all your questions. Hopefully, you will shoot into our direction with all good comments and good questions. Happy to take them. And as usual, it is Nicolas raising his hands already. Nicolas, here you go.

So maybe a few from my side. The first one will be on the guidance for '25. I believe on the slide that you showed, you were not showing breakdown on top line between Medical and isotope segment. Could you give us some maybe insight on how we should think about the two to get to the top line growth that you have shown? And also still on guidance, the adjusted EBIT target seems quite high compared to consensus. So could you help us to understand what's the gap that will make you reach this, let's say, 24% adjusted EBIT margin for this year? And then a final one, just on Q4. What drove this very strong performance? And should we expect maybe some correction or if it was stocking effects, things like that, that could impact '25? And I think I will stop there.

Okay. Yes, I can give you an idea about all the 3 topics you were mentioning. And Julian, for sure, from the financial point of view, will also add into my answers. First, the guidance, yes, right, you are. We are not going up here now by product, by product line or even segment-wise. Now basically, the general story for IP is that we want to grow with GDP, worldwide GDP. So if you take the number of last year for IP. Multiply this GDP, you can basically come to a range in which IP should develop. So that will be a normalized growth, and then the remaining part will come from the Medical part. The margin of 25% -- 24%, yes, that is ambitious. And that also brings here some tears in my eyes because I say 20% is a benchmark we want to achieve. 24% is really something. There is one slide. I don't know whether -- let me check that it's good that you bring up here, 1 second. Here. This is a slide which was published recently. And you see here all the pharma companies. Whether the numbers are true or not, no idea. But at least we wanted to check in which range we are playing with 22% of last year. And you see here, that is the range of companies we are currently. Now if we go up even by 24%, then we really come to in a range of Roche, supposing the one really big pharma player and known for high profits and high profitability. So that is an ambitious target. And we shouldn't take all these numbers here for granted because never believe in a statistic which you have [ pulled ] by yourself, but it looks quite reasonable and already is in a very good range and to then continue even in further growth of '24 is ambitious. But we are quite bullish because also you know that we have some license deals. One is with QKM and the other is with Telix. And there, we also generate income. And there, the costs are also within a certain corridor. That's why I'm confident that the range which we are publishing here with the normal corridor plus/minus a certain percentage, which we are also giving out with the guidance should be achieved. Your last question was Q4 versus Q1, and that is a difficult but also a very important question. The message which we gave out earlier on is that whatever happened, in particular, the cyberattack or other issues with production facilities will not change the overall good outlook for Eckert & Ziegler for the years to come, in particular, for the year 2025. Now the Q4 was really strong due to some delays in the production of the gallium generator in Q1. And then shipping and sending out and being something on delay, there is some kind of postponement in shipping out the generators in Q1 to Q2. So if Q1 numbers are going to be published, then this should be taken into consideration. But overall, the performance will be as I just mentioned. Okay.

Maybe if I can just have a follow-up question. Just to come back on the EBIT target. So I guess it's the one-off that makes the bump to '24 or there is also contribution or better profit mix between Medical and IP on top of that?

It's normal then also as in the past. Now we switch from France to Switzerland, and here is a good representative, Jean-Marc.

Yes. I still struggle with a couple of things. I mean, Medical, growth has been nearly 30%, right? But then you give us the radiopharma sales, which have gone from EUR 85 million to EUR 125 million. And I know that radiopharma because the Argentinian business is not a top product, but is accounted for in radiopharma, so it's a bit dangerous. But it's fair to say that the rest of the medical business has been down quite a bit. Is this correct?

I wouldn't say down. I wouldn't say it did not contribute to that growth momentum proportionally. So lutetium -- percentage-wise, the growth of lutetium was super triple digit. In terms of real money, we are still below our expectation. The growth in actinium, 1,000% probably, but still in low absolute numbers. And that has then some dilutive effect of the overall percentage, of course. So it depends whether you look to absolute growth or to the -- I wouldn't say down, but the others didn't contribute like...

No. No. But I was referring to radiopharma and then the rest, which is also booked in Medical. I mean the radiopharma growth was huge. I mean it was 48%. So that's very solid. But maybe coming on to that quickly, I mean, that is EUR 40 million, absolute EUR 40 million more sales in radiopharma than last year. And I mean from EUR 85 million to EUR 125 million, right? That's exactly -- that's basically exactly EUR 40 million.

Is this a complaint?

No, no, no. The thing is you then try to give us the highlights of what has been growing. And then you're talking about, I think, the generators were EUR 14 million; sales in engineering, EUR 7 million; radiation therapy, EUR 2 million, et cetera. I mean if I add all this up, that brings me to around EUR 22 million. Where are the other EUR 20 million? I mean because these are the biggest products, right? I mean the generator is by far the biggest product. The engineering services, I would say, are quite considerable, but we're still missing some EUR 20 million in sales growth. I mean it cannot be lutetium, it cannot be yttrium, it cannot be actinium. What is it?

Okay. Okay. Yes. Julian, without getting -- going too much into the detail, perhaps you want to give some more light to the shadow which Jean-Marc is putting here on my slides.

First of all, hello to everybody. So actually, you named it. There is other isotopes. And you say it can't be coming from those, but it is coming from those. And there is coming -- we've talked about the license deal with actinium. So for sure, this is also related to actinium. So it's not a secret. You have another EUR 5 million from actinium, actinium plus. You talked about the SPECT business. We had a devaluation last year in December, which gave us a little back wind, if you want. This also comes up with around EUR 10 million in comparison to last year. So you are completely right in your analysis, but saying this is not -- or cannot come from those is wrong. It is coming from those.

So actinium, obviously, also a big driver here, I understand that. Yes, I forgot about that. It was not listed on the chart. So this is why I kind of forgot about it.

Yes, sorry.

Why is it not on the chart? Because the business of Eckert & Ziegler is both selling isotopes but also going into license deal. We have always done license deals. And when they are in that part, then we put it there. If they are in the IP part, we have also done license deal there, we would show a different place. So that's why it's not an extra business unit. It's part of that. And also in '25, we have done another license deal with the Chinese company, QKM, and that will then also be presented and shown up there under the Radiopharmaceuticals.

Okay. And if I may, an additional question from my side. I mean the write-down of this atomic mills business or so on. I understood that this is quite important in your lutetium value chain, but it doesn't seem to be working, right? This is why you've written it off.

The expectation for Atom Mines were higher than we currently see the situation. And the accounting rules are very strict, and we tried to accomplish with these science. And if we don't have proven evidence that 100%, it will work, we rather go on the cautious side, and that's why we have written the project. It still continues. It's still running. But at a certain time, the accountants -- the auditors want to see yes or no, pregnant or not pregnant. And then this is the situation. The project continues. Now business-wise, that is not an investor. But business-wise, we have enough ytterbium on stock to cover all the upcoming needs for the production of lutetium. The in-house production would have had 2 advantages: a, potentially slightly cheaper than buying it on the spot market; and b, having an additional source, an internal source, so to be more independent from an external supplier. Now this is much more relaxed by now. There is enough ytterbium on the market. It's not a shortage there. That's why business-wise, I'm not afraid. The project continues, but we took here the opportunity then to say also, okay, now as of today, it has not fulfilled all the milestones, and that's why we took here the [indiscernible].

Okay. And if I may, a third question, I think it's more for Julian, on that one. And the reserves that you accumulated this year, I saw quite an increase compared to 2024. And I'm talking about the reserves for the build-down of your facilities, et cetera, and things like this. That was around EUR 12 million last year and has increased to, I think, around EUR 19 million this year. So EUR 7 million more, which even with growing sales -- in percentage of sales, it makes actually 1.5 percentage points on EBIT. One could argue that the EBIT should have been much better, but maybe there is a good reason why you are more cautious on reserving? And is this continuing into '25?

Shall I, Harald?