Galenica AG (GALE) Earnings Call Transcript & Summary

Dear analysts, members of media and guests, a warm welcome to the analyst and media conference call for the first half year of 2026. [Operator Instructions] Our CEO, Marc Werner, will shortly be giving you an update on the implementation of our strategy before we take a look together at the figures for the first half of the year. As always, we'll have a Q&A session at the end.

Thank you, Julian. Ladies and gentlemen, thank you for taking the time to join us on this call. Let me first give you a brief review of the first half of the year, which suffice it to say, has turned out very well for our company. In the first half of 2026 too, we continued to strongly execute our strategy with continuous growth for the Galenica Group. We have once again achieved strong sales growth of 7.1% to CHF 2.136 billion and have also increased our adjusted EBIT by 7.1% to just under CHF 118 million. Adjusted for the one-off items in the previous year, this corresponds to EBIT growth of 12.6%. And this is despite the fact that seasonal effects remain noticeable. This comes to show that our broad portfolio and our integrated business model are proving their worth. Our market position remains strong. Against this background, we are reaffirming our guidance for the financial year as a whole. We are also on track to meet our medium-term guidance up to 2027, which we raised in March. Julian will go into the details of the figures in a moment. There were 3 key strategic priorities in the first half of the year. First, we have continued the further development of our omnichannel offering in our pharmacy business, and we are continuing to gain market share. Second, we have further streamlined our homecare business and are experiencing growth -- strong growth in this area even. And thirdly, we continue to be very pleased with the integration of Labor team. In the first half of the year, Galexis and Labor Team further strengthened their collaboration. But let's now delve into the details. The role of pharmacies and healthcare continued to evolve significantly during the first half of the year. This is reflected in the demand for consultation and healthcare services. In the first 6 months, we carried out 193,000 fee-paying healthcare consultations, an increase of 27% compared with the last year. Since March of 2026, we have rolled out our Consultation plus service in all Galenica pharmacies. At the same time, we are investing in the in-store experience also at our pilot pharmacies, Sun Store Renens and Amavita Glattzentrum. We're testing how we can facilitate both efficient processes and personalized private consultations. We have noticed that more and more customers are spontaneously making use of the health service because they discover it in-store, thanks to the new consultation rooms. By the end of the year, we aim to roll out the new concept to 3 further pharmacies. Health insurance providers too are fully committed to this approach to basic care, thanks to the partnerships we have established with various insurance providers. In the meantime, more than 1 million policyholders in Switzerland benefit from our services being covered by their insurance. From January 1, 2027, vaccinations administered in pharmacies will also be covered by compulsory health insurance and the need for this is clear. In the last 6 months alone, our pharmacies administered 25,000 vaccinations. Together with pharmaSuisse, we are now also working on new services relating to treatment adherence and prevention, which are also set to be reimbursed by basic health insurance in the coming years as part of the cost containment package too. Politically speaking, progress has also been made in the online sector over the last 6 months. The consultation on the liberalization of mail order trade has begun. As we have emphasized on several occasions in the past, we support the liberalization of the mail order sale of over-the-counter medicines. This will level the playing field so that customers in future can purchase their medicines online within Switzerland. At the same time, our top priority is to make sure that patient safety is guaranteed also online and that medicines are supplied to the highest quality standards. We are, therefore, committed to ensuring that risks and counterindications can be identified as early as during the ordering process. We continue to expect that liberalization will not become a reality before 2029 or 2030 at the earliest. Based on our current business model, this would affect a maximum of around 13% of our pharmacy-related sales. Any potential shifts in market share from the brick-and-mortar to the online channel, in our view, would occur gradually and over a longer period of time. At the same time, we see many opportunities in this. With the Redcare joint venture, as well as our investments in the digital customer journey and our omnichannel capabilities, we are very well positioned to capitalize on such a development. An important tool in the digital customer journey is our so called Prescription Manager. This enables customers to view and manage their repeat prescriptions and prescription-only medicines online. They can manage it and to reorder medicines digitally. The tool helps us to further integrate the services offered by our brick-and-mortar pharmacies with the online world and helps to build customer loyalty. It also frees up time for pharmacies, which they can then devote to other tasks, such as providing healthcare services. By the mid of the year, around 90,000 people were already using the Prescription Manager, and this number is growing rapidly. The service Click & Collect is also very popular with our customers. The demand for homecare services continues to rise. To provide targeted support for this group growth, the organization was restructured with a view to the future and existing units were being merged. Bichsel HomeCare and Lifestage Solutions joined forces back in autumn 2025 to form a joint sales organization. As part of the refocusing of Bichsel's strategy, we decided in the spring, following careful consideration, to discontinue Bichsel's pharmaceutical production by the end of 2026 and to refocus its activities on the high-growth homecare sector. Now this decision was not an easy one for us to make. Therefore, it is all the more important for us to make sure that we support the affected staff with a comprehensive redundancy plan and to provide our customers with reliable support during this transitional phase in consultation with the authorities, of course. Over the past 6 months, we have now fully merged the 2 companies, that is to say, Bichsel and Lifestage so that they can serve the homecare market from a single source in the future. The aim is to drive the further development of this sector more effectively through an integrated structure. In the homecare sector, the provision of medication and blister packs tailored to individual patients is also becoming increasingly important and forms a key part of our market strategy. Medifilm is seeing sustained growth in patient base. At the same time, we are upgrading our machinery pool. And thanks to the newly fully integrated machines, we are able to further automate our processes. A third priority was the further development of our business and the closer integration of our divisions. The focus here is, in particular, diagnostics. In this area, we are consistently driving forward integration into our network and further expand our collaboration with Galexis. The aim is to integrate Galexis' range of medications and Labor Team's diagnostic services for medical practices more closely, and to provide them from one single source. At the same time, Labor Team is continuing to invest in its infrastructure and by extension in efficiency and automation. At the Goldach site, the microbiology department has been modernized and expanded to include an automated testing line. Now this means that all test series in the portfolio are now automated. The integration of Labor Team into our network is proceeding according to plan. The focus is now on synergies within the network and further growth. Following the successful acquisition of Labor Team, the next phase of the company's development and integration into the Galenica network has begun. Alain Cahen, CEO of Labor Team since 2021, and Labor Team have mutually agreed to terminate his employment contract. COO, Thomas Brinkmann will take over on an interim basis and the search for a successor is underway. In short, we continue on our growth trajectory in the first half of 2026. We have further strengthened our market position and continue to expand our healthcare network. An important key focus in the second half of the year is the modernization and automation of our pharmaceutical wholesale business. At the Galexis site in Niederbipp, the switch to SAP is scheduled for the end of August, beginning of September. In Lausanne-Ecublens, where we carried out a major system migration last autumn, we are now seeing the expected efficiency gains. The level of automation there now stands at roughly 70%. These measures have also led to improved capacity utilization. By shifting volumes from Niederbipp to Ecublens, we have been able to optimize capacities more effectively. Furthermore, we remain firmly focused on our strategy. We aim to improve collaboration within our group even further and realize additional synergies for our customers. To this end, we are investing in our staff skills in close cooperation with other market players, and we also invest in digital solutions that streamline processes and free up more time for patient care. I'll now, ladies and gentlemen, hand over to Julian for a detailed look at the figures.

Thank you, Marc. That takes us to our business update for the first half of 2026. Let us start with the market update. The pharmaceutical market grew by 3.7% in the first half. Brick-and-mortar pharmacy saw a strong increase at plus 5.4%. The physician segment was up 3.1%. The hospital channel saw flat development. Growth was once again driven by expensive medication. The volumes sold were down minus 0.6%. Closer look at brick-and-mortar pharmacy shows different growth dynamics within the segment. So OTC was negative at minus 0.3%, driven also by a slow flu and cold season. The non-medication segment was slightly up at plus 0.6%, supported by the growth in food supplements. These 2 categories essentially reflect the consumer healthcare market that came flat in the first half of 2026. The main driver for growth in brick-and-mortar pharmacies, therefore, clearly was prescription medicines with a plus of 6.9%, once again, also supported by the growth of GLP-1s. In that market environment, we showed strong growth of 7.1%, both our segments, Products & Care with a plus of 11.5% and our segments, Logistics & IT at plus 4.2% contributed to that growth. The acquisition of Labor Team contributed 3.1% to our growth in sales. Adjusted for that effect, group growth was at 4.0%. Let us now take a closer look at the essential drivers. Our local pharmacies grew by 6.2%, which is a combination of good organic growth, but also successful expansion. Our pharmacies network expanded by a net 3 locations and taken together with our acquisition of Puravita, that contributed a plus of 1.9% to our sales growth. The organic growth is therefore 4.3%, and that means that taking the product mix into account, Galenica won market shares, especially when taking prescription medicine into account. Galenica strongly outperformed that market. Product & Brands showed a 9.8% sales decline in the first half of 2026. We expected that decline. In the Swiss market, the cold and flu season was quite weak in the current year, which affects Galenica, especially due to our portfolio that accentuates flu and colds. And given the dry weather, 2026 has also seen fewer mosquitoes, accordingly, demand for mosquito sprays like Anti Brumm was down. All in all, we see the sales development in the Swiss market as a temporary seasonal weakness and are expecting a return to growing sales as early as the second half. In our international business, there was a stock reduction of the bridging stock inventory of Perskindol due to regulatory adaptions in the EU. The negative impact of these bridging stock sales to our growth will affect the current year. Starting next year, we're expecting a return to growth in international sales. Our segment Services & Production has developed truly positively and showed a sales plus of 9.4% to CHF 63.4 million. The homecare business of Bichsel, Lifestage and Medifilm was the growth driver. In the course of phasing out Bichsel's pharmaceutical production, Bichsel's homecare business was merged with Lifestage and that bundling will create the foundation for continued growth in homecare. In Wholesale, sales were up strongly also at 4.3%, outperforming the 3.7% market growth due to a portfolio adaption of physicians. The customer segment grew nominally less than the market, whereas the Pharmacy segment continued to win market share at a strong 6.3% plus. Let's have a look at profitability. EBIT grew in the first half by 7.1%. The growth was based on the good operating results and the acquisition of Labor Team in September 2025. On the other hand, the positive one-off effect in the previous year, CHF 5.4 million had a negative impact on EBIT growth. Without these effects, the adjusted EBIT would have been up by 12.6%. Profitability in Products & Care increased from 9.3% to 9.6%. The decisive factor was the higher gross margin due to the acquisition of Labor Team and improved staff cost efficiency in pharmacies. In Logistics & IT, the comparable profitability was flat at 1.5%. Now the ERP system switch in our main location Niederbipp is imminent and after the go-live in the second half, -- and after completing the hypercare phase, we're expecting efficiency gains in 2027. Now extraordinary costs in connection with closing down Bichsel are at CHF 30 million lower than we expected. Originally, we expected CHF 35 million to CHF 40 million. Cash flow for the first half was lower than in the previous year. Like every half year, our net working capital is also higher this year due to seasonal effects. Like every year, that impacts cash flow in the first half. In the previous year, that seasonal effect of the net working capital was not fully visible. In 2025, we implemented crucial and sustainable measures to optimize our net working capital, which had a one-off positive effect. This year, 2 separate factors came into play. On the one hand, delayed billing due to rate adjustments as well as a temporary inventory buildup for the ERP in Niederbipp. These 2 factors will have been compensated for by the end of the year. We continue to have a strong balance sheet. Adjusted net debt was up, especially due to the higher net working capital to CHF 837 million. So net debt is at a factor of 2.7 and now without seasonal effect of the net working capital, we're planning once more the debt coverage of 2.2 to 2.3 at year-end. Let's have a look at the regulatory effect apart from the novelties in the cost containment package, there are 2 more new things. Now we have a price reduction. So the handling fee was reduced by CHF 5 and as well as a 10% price reduction on the 10 highest revenue lab tests. On the other hand, given the launch of TarDoc, the fee for electronic order recording ended. So the impact for laboratories have mainly been compensated for. That adjustment has been fully included in our guidance. And in homecare, starting on January 1, 2027, there will be a new remuneration system for artificial nutrition. So far, the margin of the homecare services was fully compensated in the product margin. As a new aspect, the product margin is supposed to be reduced, and the service component will be reimbursed separately. The exact concept of the service remuneration is supposed to be established in the fourth quarter of 2026. We expect the impact for Galenica to be manageable. Let us now look at the guidance. We confirm the 2026 forecast for consolidated net sales of 5.7% growth and an EBIT growth of between 6% and 8%. We also confirm our stable dividend strategy with a dividend at least at the level of the previous year. So Galenica has had a successful first half of 2026. We're clearly on track with our guidance, and we have good momentum for the second half. So much on the results. We're looking forward to taking your questions.

[Operator Instructions] The first question comes from Urs Kunz. We cannot hear, unfortunately.

Can you hear me now?

Yes. Yes, we can.

Great. Labor Team. Could you say something about the sales development in the first half year compared with the previous year? What about the volumes? And what about the operative development? How good was it? And the CEO switch, did that have anything with the business or not? I assume not. Then HomeCare Bichsel, discontinuation of pharmaceutical production. I think you said that the one-off effects have been adjusted for the first half year. Could you maybe comment a little bit on that situation regarding Bichsel? What about the sales? Unfortunately, there are some things missing. And then the last point, investment. You mentioned CHF 90 million, I think. I see CHF 31 million here in your statement. Does it mean that this range is not really topical anymore this year?

Thank you for these questions. I will start. The sales of Labor Team are developing very well. We have growth to be seen there. You've also seen that if you take a look at the half year results compared with the first 4 months, 1 year ago, we did not publish the sales. So we cannot really make a statement on account of Labor Team when they were not part of the Galenica Group. CEO, well, Bichsel does not have anything to do with anything after the integration of Labor Team by Galenica. That was just a normal natural development that took place. It had nothing to do with anything else. Then HomeCare Pharma, the last question, Bichsel Pharma and the discontinuation. Yes, you're right, CHF 30.4 million were one-off millions that have been recorded with respect to readjustments and stock taking and things like that. The second half, there will be some minor costs, but also some sales gains regarding certain equity. So all-in-all, we will be around CHF 30 million, maybe a little less. That's an estimate even if we recorded CHF 30.1 million per first of a half year. And the investment situation is also a timing effect. The estimation is CHF 80 million to CHF 90 million for the entire year 2026.

Next question, Jan Koch, Deutsche Bank.

First question I have regarding the services. What about the development compared with the expectations? On the Investor Day, you mentioned cost effects. Have they also come about as scheduled? And what about your competitors, in particular, regarding the coverage by insurance companies? I assume that you have some framework agreements with the insurance companies and you're probably better positioned than the competitors and the OTC liberalization, I know it will take some more time few years probably. But can you talk about the strategy for the case that the online market will be liberalized in the coming years? Also regarding the Redcare joint venture. The German OTC market opened up 20 years ago, which meant a lot of pressure for OTC medications. I understand the Swiss market is different. But how do you want to make sure that the prices are not under pressure in Switzerland? And then GLP-1, that's the third question. The medication have been growth drivers for you. What about the business for you now? And what about the growth forecast in this area in the coming years?

Thank you for these questions. Yes. Would you like to start healthcare services? Yes, for all the services that we provide, we have a product. So everything functions the way we thought about. We have a service plus a product that goes hand in glove with it. As it comes to the competitors, I cannot really comment on that. I do not have the figures whether or not the competitors have similar products as we have. We wanted to have that strategy 2026. We are really happy about our plan, our forecast, but we do not have a lot of data for that. Yes, you're right. Of course, we want to lead the way, and this is why we contact the insurance companies here. and work together with them. That's one part of the strategic initiatives regarding the growth when it comes to prescription medications. What we see, this is a fruitful development because in this case, we are gaining market shares. Liberalization, that's a very good question. Thank you so much for it. In 2020, we started with it all with the preparation of the liberalization. At the time, we had the omnichannel product as a strategic project. We invested in our online projects and channels, the joint venture with Labor Team came up in this respect. So apart from our partners, we want to have an online partner we said. And in the coming 4 years, 5 years, 6 years, we focused on that. That is to say we focus on the basic idea that the market will liberalize here. So this is why we are in a comfortable situation when it comes to investment. We have the staff with online competence in our company, but also we have it in Redcare. And I'm sorry, I talked about Labor Team, it was really geared towards Redcare. What about the price development, Julian?

Well, we have to wait and see. We have a stake in the online channel also. So we are also in a position to exert some influence on the price development. We have to see where in Switzerland in the past, we've opened channels and there is a non-medication segment that we also have in our pharmacies that really survive despite the online competence. And then there are Swiss medications that are really Swiss-centered. GLP-1, yes, that is clear. This remains a strong growth sector. We have seen some 30% growth in GLP-1. That's one of the driver why the pharmacy sector sees stronger growth because it is distributed via the pharmacies. In our case, the business is growing. We have a similar growth strategy as the market. Within the Galenica Group, it will make up for some 1%. If we take a look at the pharmacy sales, GLP-1 makes up some 4% of our total sales.

The next question comes from Sebastian Vogel, UBS.

Three questions, and I would like to ask them one after the other. The segment reporting in the report that you made. And if I compare it with the segment reporting in the alternative performance measures, the EBITDA figures are differently mentioned. Products & Care has some CHF 106 million or CHF 107 million. In the other case, it's CHF 122 million. So there seems to be a difference in reporting. What is the difference of that?

Well, yes, if I may, I can answer that question. I do not really know by heart all the exact figures. But what we can certainly state is at the Investor Day last year, we also talked about the changes. Profitability has really changed a little bit when it comes to Logistics & IT, the IT had been moved to the corporate, and Logistics & IT, therefore, dropped a little bit. That was CHF 1.8 million Products & Care, thus really increased. So that really led to the modification, say, or differences between the different reporting schemes. Otherwise, I cannot really comment and we would have to check again.