Eckert & Ziegler SE (EUZD.XC) Earnings Call Transcript & Summary

Good afternoon. This is Harald Hasselmann, CEO of Eckert & Ziegler. Very much welcome to today's analyst conference, August 13, and I'm going to present to you the first half year results of the year 2026. With me is Karolin Riehle and Julian Schröder, and I'm pretty sure that you will have questions later on, finance related. And Julian, as always, is well prepared to step in, correct me or add what I have tried to present beforehand. I will give you an update for the first 6 months for the first 15 to 20 minutes, and then I open the floor for discussions. You know that what I'm talking is more important than what I have written beforehand. So this is the usual disclaimer. And all what we have achieved is accomplished by 1,000 employees around the world, out of which you see here the Executive Committee with Gunnar Mann and myself representing the Vorstand, but the entire executive team is mentioned here, representing both segments as well as the holding. For those who are following our presentation, some of these slides are familiar to you. Now with a lot of excitement, we have added 2 companies and 2 deals here just recently. BWXT Medical has a new owner up to $800 million being paid for that business and 10x more, USD 8 billion have been paid to acquire Lantheus. So it's not only that the business gets more and more busier, but it's that the momentum continues, that big industry and investors are paying a lot of attention to build up here a really big industry for the treatment for imaging and treatment of cancer and other treatments around the globe with small companies, big entities. And this story is up for continuation. That's why we do believe in a strong uptake for the next 5 years on a 15% average growth rate up to 2030. The market should exceed a USD 25 billion by then. And Eckert & Ziegler's aim is to participate, to participate with our broad portfolio of products which we have. You know that our flagship is the Gallium generator. It is our Lutetium customers where we are getting the momentum now. It's Yttrium, a long-lasting isotope in the market for many, many years and really contributing to Eckert & Ziegler's success. Actinium being produced regularly, constantly with high yields to be sold to customers. And of course, our equipment and services, our CDMO business. I will talk about that in a minute. Now these are the customers in the 3 main areas: Lutetium, Actinium and contract manufacturing. I'm mentioning these 3 pillars because they are those which are representing the growth momentum. I could have also mentioned all the Y-90 customers or the GalliaPharm customers. But here in Lutetium, in Actinium and our CMO business, we want to grow. We are demonstrating the growth momentum for the years to come, and that's why it is important that we have big customers and also smaller companies on all of these 3 pillars, which we are making in contract manufacturing. For those who are following us for a longer period of time already, you know that we established that business in order to foster the interaction and the relationship with our customers that they do purchase isotopes later on. Meanwhile, that business has become an independent franchise in that respect that it is generating growth, revenues and profit, all of the above, and that is to the satisfaction of the entire strategy execution team. Now here, we see the 2 wheels in which we are working. The upper part is the Medical segment, the lower part is the Industry segment, sources isotope, sources and isotopes in all areas you might dream of, and that's why we are continuing that growth. Talking about Medical because here, most of you are taking the highest level of interest. These are 4 events which took place in the last quarter. We have opened our factory in Jintan in June of this year. We entered into a partnership with Thor Medical for the evaluation of business possibilities for Lead, for Blei, Plumbum, Lead-212. We have been awarded for a team award for Best Managed Companies award. And in our baby -- our Therapy business, a very important certification. The MDR certification has been granted for our eye applicators labeled with Ruthenium-106. So these are 4 important news, which have been published, among others, in order to demonstrate that we are active in all these areas. These are numbers of last year. 55% of the revenue is generated within Medical, 64%. So almost 2/3 are generated in terms of EBIT adjusted within the Medical that demonstrate a higher efficiency where we are working with approximately 400 people in the Medical, 600 within the Isotope segment. That's why you see here on that side, the revenue per employee is EUR 200,000 with the Isotope and EUR 400,000 within the Medical segment. So that really demonstrates how important that business is and will continue to grow. Also last year's numbers to start with our strategy, growing top line and bottom line with a mixed portfolio in both areas. And last year, these are well-known numbers with a growth rate of a margin above 20%. You remember 20% is the threshold we don't want to undermine [indiscernible]. Now how does the first half year look like? The press release has been published today morning. For those who do know the story of Eckert & Ziegler, we were suffering in last year in '25 by the cyberattack in the first half year. And that's why for the first half year, a pure apple-to-apple comparison remains ambitious due to 3 effects: A, is the cyber effect; B, is a big license deal in the first half year of last year, which happened with Actinium-based at EUR 5 million. And third is the FX adjusted numbers. And I would like to highlight that because if you just look through the flat overall sales numbers of EUR 150 million to EUR 150 million more or less of the last year, that is only partly true because there is no license deal this year. If that was to include or adjusted by last year, then logically, the sales number would be positive. Most importantly is that radiopharmaceuticals, so the composition of everything which deals with radioactive materials within the pharma business with the pharma world continue to grow. 3% compared to last year. License adjusted even double digit. And that is, I mean, you can adjust whatever you want. But it is important at least to mention that in this year, there wasn't a license deal yet. And if you compare that with the operator [prior] business, then it's really a super result of a double-digit growth compared to last year. Now there are some positive effects, some lower effects. I come to that in a minute, a mixed picture. And that is also here if you look to the EBIT adjusted number, it's slightly lower than last year. Here, again, the license deal, of course, this year is missing. And then we have also some other issues within the Isotope business. I will talk in a minute. And then net income, it's positive here with 5% growth compared to last year due to some positive effects in terms of financial results and others. Let's look to the 2 segments with a more detailed view. Here, we see that our CDMO business really continues to grow EUR 3 million more than last year. Lutetium stronger than last year, EUR 2 million more, Y-90, EUR 2 million more than last year and generators also EUR 2 million more. So in all our important areas where we want to demonstrate our growth momentum, we are growing and that is good to come. Now if you look to pure Actinium deals, of course, as we are missing the license deal in this year, you cannot compare last year to this year. So I would say in the pure Isotope segment, which really represents the radiopharmaceutical business, positive news. FX adjusted, it would be even stronger. Now engineering, our ITD business in Dresden, is weak. There is less demand and less orders incoming, and that flattens the overall performance within the Medical segment. EBIT adjusted, good result here, growth by 7%, even not considering the license deal. So if you compare that, then the apple-to-apple comparison would show an even stronger adjustment and stronger growth on the EBIT adjustment here. So that's overall good. And I think you would agree with that, that the EBIT adjusted margin even above 30% is a skyscraper level. Now Isotope, a mixed picture, flat revenue. And in terms of EBIT adjusted, we see a downgrading here, minus 24% because the product mix is less favorable. We are losing industrial, which is really having a good gross margin and that we are missing in compared to last year. Now what is the outlook? The outlook for this year is if you compare that in the first quarter of this year compared to first quarter of last year, there was negative growth of almost 50% in terms of EBIT adjusted. And that has now come down of basically a flat Q2 result this year last year, only minus 5%. So what we mentioned earlier on is that the trend is positive, very weak starting point at the beginning of this year. And then step-by-step, we are improving. That gives us a lot of confidence that by the end of the year, we will achieve what we have planned, what we have budgeted, what we have communicated also in the IP segment, and that's why the positive trend is positive. And I think here, if you look to the pure 2Q result here, then we see that Q2 is even better than last year, the Q2 of last year with plus 5%. And that demonstrates that the overall performance here for the first half year is positive. There were basically no big adjustments. You see here, it's everything below EUR 1 million. So I skipped that slide because there are no big events for the first half year. Where is the revenue and the sales are coming from, basically, no big change, some slight deviations. Europe is growing here, more sales in Germany and the U.K. and Scandinavia. So that's growing so that 40% of the overall revenue is generated in Europe. Also, approximately 40% is coming from North and South America. So no big deviation. China and Asia, a little bit less than last year because the license deal is missing here that you can see very easily. Otherwise, also no change. So the group revenue split in the continents is stable in spite of all international conflicts and disruptions you might dream of. So here, a very stable picture. And if I look to the radiopharmaceutical picture, here again, what is happening, growth, no license deal compared to last year, but the overall trend positive and also in the years, in the quarters to come, we expect an overall performance in order to achieve our EUR 160 million round of EUR 160 million by the end of the year in the composition of where you're talking Y-90, Lutetium and Actinium, so the bulk radioisotopes, but also our generators, the cold kits of South America CMO business continued to grow. So that overall gives you the picture where basically 50% of the overall company's revenue is coming from. Let's have a look to the balance sheet. Cash. Cash is king, still EUR 100 million and slightly more of cash, which we have in our bank account than receivables, money, which we are collecting is also a good number in terms of overall ratios. The loan liabilities on the other side have been further reduced, only EUR 10 million. So we are basically debt-free. And here, we see some benchmark. EBIT adjusted, I mentioned that number before and is stable. Cash flow is missing here the license deal, but everything is also according to last year. Cash stable, loan stable, equity ratio slightly better and headcount in the area of 1,100 FTEs around the globe. So basically, there is no big changes in terms of the KPIs compared to last year. If you want to melt it down, here are the 4 key factors from equity ratio to cash flow and EBIT adjusted numbers. Outlook. What is the outlook, EUR 320 million or the range of EUR 200 million to EUR 320 million top line, EUR 80 million bottom line, and we remain confident to arrive in that range as we have announced earlier. Before we open the Q&A session, I want to give you some updates why we are always talking about China, why is China so important for us as a supplier of isotopes within the oncology area. If we compare USA and China, we see that, unfortunately, and that is the middle chart here of that side is that in China for the 4 most dominant cancer diseases, breast, lung, colorectal and liver, it is detected by far too late. 70%, 80% of the diseases, which are most dominant in China are only detected and imaged and it's basically too late. So we have new cases of China vs. U.S. is twice as high, no surprise. We have much more inhabitants, but the death per annum is 4 to 5x higher. So that gives us a strong need, and it illustrates why China is so actively in building up more PET centers, CT centers. They want to double the number within the next 10 years that more patients should be treated and more hospitals should be equipped to treat and to image cancer. And how they want to do it? They want to do it with Lutetium, with Actinium, with Gallium and with Lead in these areas I just mentioned, lung, colorectal, breast and liver. And these are not only our partners, importantly enough, but these are also the big players. And how is the overall landscape? There is demand and availability of our Gallium generator. And if you look, there are local producers, but Eckert & Ziegler also plays an important role here for the supply of Gallium-based generators. Same applies to Y-90. The global supplier is basically only EZAG. Lutetium, we are not producing in China, but we are exporting and we are sending to China because there is a big demand. And let's see how the development for Actinium and later on also for Lead is. For Actinium, we are already selling to China, and it's good because different to other products being sold in China, here, we see a high price for Actinium for the current situation. And Eckert & Ziegler set up with basically 3 pillars. We have our network with our distributors, which you see here, a lot of distributors working for our products. We have our joint venture with DC Pharma to produce in China for the Chinese market, our radioisotopes. And we have our own sales office selling our products into the entire Republic of China. And we are placed in Jintan here as our sales office as well as our production. And from that perspective, we want to grow. And we started that basically that journey 3 years ago, less than 3 years in setting up the joint venture, then we are setting up our cyclotron. We had the inauguration in June this year. And in August, the installation of the hot cell took place. So we are fully on track in setting up here our production facility. I just want to illustrate here how important China is for the medical market and how Eckert & Ziegler is positioned here. With this one, I close the presentation, not forgetting Karolin's slide here, what's coming up. There are lots of conferences in Hamburg and Julian is traveling throughout the U.S. area. And then we have later on here in Munich and other conferences where we do hope to see you. Next quarterly report is November the 12th. With this one, I stop sharing my presentation. Thanks for your attention. And I do open the Q&A session and look who is first. I see here the first number. And please with this one here.

I'm wondering about the full year guidance, you're guiding for EUR 80 million of EBIT. Now you achieved EUR 33 million in the first half, so you need a significant step-up in the second half. I'm aware there's going to be a EUR 5 million license payment that you're expecting in the second half. But can you give us more, or can you talk about your confidence and the drivers why the second half should be significantly stronger on EBIT than the first half?

Is this your only question or is there more?

The other question is regarding the product mix in Isotope. You said there was, you suffered from a weak product mix. I think it's due to industrial weakness and also oil well logging. How do you see the product mix developing in the second half of the year? That's it.

Okay. Julian, do you want to step in here with the bridge from the guidance?

Sure. Tim, I mean, basically, we have the situation at Medical is performing quite good. So doubling this plus the EUR 5 million is more mathematics show us that this works out with the guidance. So I think the decisive factor will be Isotope products. Looking at Isotopes product, we've seen the momentum growing. And as you mentioned correctly, we still have this weak product mix. Going forward, we still expect the industry, including oil well logging products, to maybe not catch up, but to increase. And this will, and this is the expectation will be a more favorable product mix in H2 as well. Plus the third topic for the holding, we have this onetime effect in H1 now with a correction from last year and some reassessment of this year, which will not double and not be shown next half year again. So having all this, I think the holding will be better for sure. And IP is going to catch up and Medical is either way on a good way.

And the second question was also the product mix as such for the Isotope segment.

Yes. I mean basically covered this. In the end, it's all about industry and oil well logging products. I mean we're going good with the medical products with the high activity radiation sources, which is mostly linked to projects that we realize when we have a good order intake, if you want. So the decisive product will be for this industrial high-margin products.

Yes, sounds good. And your customers in the industrial business, are they signaling, is that what is, your discussions with your customers, is that what is giving you the bullishness for a further, for a pickup in the second half of the year?

Yes, we get the feedback from our American colleagues that already the order intake for Q3 is way better than for H1.

Nicolas, you are the next one.

So maybe 2 for me. The first one will be on the Lutetium revenues. I think you highlighted that you had a very strong momentum if you compare to last year. Could you kind of run us through what were the drivers that led to that? And is there any one-off, or we should expect that, let's say, the trend is probably starting to ramp up and we should continue to see that. And we could maybe expect that you might almost reach like a double-digit million maybe of sales for the year, something like that. And second question was on what you just discussed about China and the strategy. In your view, what will be the ideal geographic split that you will need to, are we to think that long term, we should see maybe 25%, 30% of the group revenues there, as you highlighted, the huge market and, let's say, not so much international competition for now. And lastly, I was also wondering about the Medical segment margin. Is it the right read to say that what allowed you to get to the 31% margin is the underperformance of the Engineering business? And so if we see a normalization there, we should see, let's say, reverse effect of margin?

Three questions, happy to take. So first one was on Lutetium. I think we will achieve double-digit sales numbers on an annualized level. That means if you take on the 12-month perspective. Now for this year, that will be ambitious to achieve because we see a strong order incoming now from June onwards. So I cannot confirm that for that year yet. Is it a onetime effect? No. It's really a positive trend in 2 areas. A, we have our big customer for which we are setting up our factory and that they are slowly increasing their numbers, Eli Lilly on the one side, but then also within all the smaller hospitals and customers, they are intensifying their order pattern, ordering pattern, and that also contributes to a steady flow. So our sales team is happy that on a monthly performance, they have not only grown month by month, but it's also stabilizing on a high effect. So we are really happy with the development of the Lutetium business. Now with China, yes, the number which we are mentioning is our target. The question then later on is how you define it. If we produce in our joint venture, isotopes and you tell that this is then a joint venture selling expertise and exercise including into the number which you are mentioning, although we are using it internally, which we will also do Germanium being produced in China will be also used by ourselves. So if you take that also by adding up the number which you have mentioned, then it is a good range. And our perspective is as follows. We want to be present in all the 4 big continents, Europe, North America, China and South America, not only because of the chemical structure of our products, which have to be close to the customers, but we also want to be, to a certain extent, producing locally in local markets. And that's why it is good to have sites also in Buenos Aires and in Brazil, where we are opening our factory beginning of September. So that all goes into the strategy of being not only a fully fledged supplier of isotopes and equipment, but also to be localized. Third question, medical mix, yes, the 30% plus is something I mean, we always said we don't want to, we have to be above 20%. And if we are reaching 30%, then we are coming more to the area in which industry works. That is not our business. I think it depends. We also want to use the money which we are generating to invest. And if we invest, then we have depreciation. So a very high number is not necessarily also demonstrating a single-minded super results. So I would say 25% plus is something where I'm more than happy. Then next one is Switzerland.

Also on Medical and the margin, I must say I was quite astonished to see. I mean, I understand that the top line was flat because of the license deal last year. So that's far I understand. But then you generate more than EUR 2 million more EBIT. So with the sales that compensated a super high margin license deal, you produced more EBIT, which is quite astonishing. I mean, maybe you can explain a little bit in more detail how you managed to sell Lutetium and Yttrium, et cetera, at gross margins, 90% plus.

Yes, so Marc. It's -- not everything is as good as Im Schokoladen, but that is, honestly, the gross margin for Y-90 is good. And I presented that the sales for Lutetium are increasing, and that also contributes. But more seriously, Julian, do you want to contribute to that also?

Sure. I mean, in the end, it's a mix. A, it's high-margin products that are going very well. And this is like for H1, for example, the generator where the margin is not drastically increasing. But for other products as like Yttrium-90 or Lutetium in this case, both, the costs are flattish, whilst our revenues go up. And seeing Lutetium, for example, I mean, a couple of you guys here, we talked about it for a couple of times. We have the irradiation of the Ytterbium-176. And I mean, I won't tell you the factor, it's hard to tell. But once we irradiate the Ytterbium, we can sell Lutetium for either one or Factor X patients. And we are in such momentum. We are producing weekly, and this is not 100% what we did last year, but close. So extra revenue is really giving us extra margin. Plus the second effect, what Harald already mentioned in the presentation, that our engineering business, the hot cells we produce is comparably weak this year due to a couple of reasons, shifts to intercompany business. We are producing our own hot cells for Boston, for example, for China, plus weaker sales. And this engineering business had very low margins. So going down there, where top line, we are very sad. But bottom line, we are...

No, I understand that the margin might go up, but I mean the EBIT also went up in absolute numbers. But, but let me ask differently. I mean you will, last year, in the second half, you had another EUR 9 million of license income. And this year, I think you're expecting some EUR 5 million. So there is, again, a negative delta of some EUR 4 million. Should we expect that all the reasons that you mentioned why EBIT grew in the first half in Medical that this applies also to the second half, so that we should expect second half medical EBIT to also be better than last year despite the fact that you still have to compensate for EUR 4 million of license revenues?