Med Life S.A. (M) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the conference call of Med Life. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand over to Mr. Mihail Marcu, President of the Board of Directors of Med Life group, who will lead you through this conference. Please go ahead.

Good evening. Thank you very much for participating today at our conference for the results of the last year and for the last quarter of 2021. With me here today, of course are my colleagues, Mr. Dorin Preda, that is a Board Member and the Treasurer of the group; Mr. Adrian Lungu, the CFO; and Alina Irinoiu, actually the person that will make to go with the presentation after me now, and she's the IR Manager and also oversees into our CFO. Thank you very much. And please, Alina, go ahead.

Thank you, Mihail, for the introduction. Good afternoon, everyone. I'll start the presentation for today with some highlights from 2021 with the key messages and outlook for the future and after that, we will switch to the financial overview in terms of consolidated statement of profit and loss, consolidated statement of financial position, and the last one consolidated statement of cash flow. A bit of a snapshot for the profit and loss evolution in 2021. In terms of pro forma consolidated sales, you will see Med Life group ended with RON 1.6 billion in 2021, representing an increase by 51.6% compared to the same period last year. From an IFRS point of view, IFRS consolidated sales were up RON 1.4 billion representing an increase by 32.9% compared to the same period last year. In terms of like-to-like increase, so without the companies acquired during 2021, the increase was of 24%. Moving now to the performance side. Strong operating performance was reflected in line with the strategy of recent years. IFRS EBITDA margin was of 20.1%, while on a pro forma basis of 18.9%. IFRS EBITDA in terms of absolute values was 1.4% higher compared to the same period last year, while in terms of pro forma basis 1.5% higher. It's important to add here that the pro forma EBITDA margin reflect the full effect of the acquisitions that were announced and completed during 2021 as well as NeoLife, which was completed in February and will start being consolidating -- consolidated with 1 of March 2022. Last but not least, the net result, pro forma net result increased almost 2x as compared to 2020, leading to 7.5% pro forma net result margin. In terms of key messages of 2021, Med Life group continued its dynamic strategy of expansion through acquisition. The group also consolidated the profitability margins, despite yet a still pandemic environment. Investments were directed towards supporting strategic objectives aimed at research, strengthening the area of radiotherapy and oncology, amplifying the process of digitization and territorial expansion. The budget invested last year, as you will further see, in the cash flow exceeded EUR 30 million. All business lines followed an upward trend in 2021 with notable performances for the division of laboratories, outpatient units hospitals, but also for dentistry and pharmacy. Overall, last year Med Life activity had a strong impact at the level of the entire medical system in Romania, with no less than 14 million services being offered the nationwide for analyses investigations, diagnoses, treatment and surgeries. We focus on quick access to medical interventions for chronic and acute patients in the context of limiting activity in the state hospital. There was an intense activity also in the outpatient line of business related to monitoring chronic pathologies in patients who went to COVID. The activity of the corporate division was also consistent and dynamic. It was focused on the support offered to large company, but also to small and medium enterprises and startups for the safety and health of employees during the pandemic. On the research side, display the significant role for the group and investments made in research activities exceeded EUR 1 million. 2021 marked the consolidation of the oncology services segment after the group has recently received the Competition Council approval for the acquisition of 50% of the shares of NeoLife Romania, which is the largest transaction carried out by Med Life last year. In addition to this partnership with NeoLife, Med Life group announced several more transactions in 2021 and by listing them, I would Veridia which was in March, Medica Sibiu started to be consolidated with 1 of May, the group of pharmacists in July, Pharmachem Distribution Company in August, Stomestet Group which is a group of 3 juridical entities include on the stomatology side in November, Oradent in Oradea in December 2021 and the last one Centrul Medical Irina from Galati. In 2021, we focus also on digitalization. we want to digitize the patient experience in relation to the interaction that we have. At the business to customer level, we have invested in new tools that helps patients access anytime and anywhere the entire medical history, and even the ability to see them in dynamics or buy products from the shop section. All these features being available in the application. In terms of business-to-business side, we have invested in new digital products that help us in this interaction with the employer, but also with the employee. In addition, internally we have digitized a lot of internal streams and processes. On a different topic, but also of importance for us is that following the quarterly review notes on Friday, 18 of February by FTSE Russell, Med Life will be included in FTSE Global All Cap indices starting with the 21st of March. Moving to the next slide, you will see that I presented the operational KPIs that support the presentation a bit earlier regarding the evolution of all business lines. You see increasing traffic and in revenues as a whole for each of our segments. If led by on a percentage basis, the champions are the stomatology with the almost 52% increase in revenues. But this is coming from the organic development and acquisition that was the very intense in 2021 for 10% growth. They basically expanded in Brussels, in Cluj, in Oradea and in Ploiesti. And the next one is coming from the pharmacies with 35% increase in revenues. Here again, a contribution was brought by the acquisition of the new 6 pharmacies brought in the group. In other business line, we have included Pharmachem Distributie, the pharmaceutical distribution company that comes with different key operation, key performance indicators, and this is why we didn't mix it with the pharmacy. Moving to the next slide, in terms of outlook for 2022, but also onwards. We are in ongoing discussions with 3 large and medium sized companies but also with 5 other small companies to join the group on the M&A side. And we aim that most of these discussions to materialize this year. As already announced, the investment budget plan for the next period is between EUR 100 and EUR 120 million while approximately EUR 50 to EUR 70 million are to be located for acquisitions in Romania, but also in the region. Development and expansion plan for 2022 it is concentrated towards Cluj Napoca, Timisoara, Constanta, opening up new clinics in Muntenia and Transilvania, but also in other regions of the country. The aim being to consolidate the national coverage in the next 2 years Med Life holds the largest network in Romania, with presence in over 25 large and medium sized cities in the country. Being the only private medical provider with 2 national coverage. The group will accelerate the growth of the second brand, with the focus on patients who are dear to National Health Insurance House backed medical services. So for this year Santa Maria will also expand its presence in several small and medium sized cities, both following a strategy through acquisitions or organically. In terms of Med Life Park, the ambitious for the 2022 are to launch a new state of the art hyperclinic and to expand the level of Laboratory of Molecular Biology and pathological anatomy. The company also aims for a much larger unit to accommodate the research division that will expand its activity in the oncology area this year. The next stage of development of the medical hub is planned for 2023 when Med Life intends to put in Operation New Surgery rooms and expand the hospitalization capacity of the largest hospital in the group with another 150 beds. Med Life Park pilot project will be replicated in the medium and long term in several large cities in the country such as Brasov, Sibiu, Cluj or Arad. In addition to M&A and organic development projects, the focus will still remain on digitalization, which is one of the strategic directions for the group's future development. Moving to the consolidated statement of profit and loss, when we are looking at 12 months 2021 pro forma figures as compared to 2020 figures, sales increased by 51.6%. In terms of operating expenses, they increase at a lower pace by 49.4%, reaching RON 1.4 billion. In terms of operating profit, an increase by 71.6% leading to RON 187 million, which is a margin of 11.5 pro forma margin as compared to 10.1 in the same period last year. In terms of the EBITDA, it has increased by 45.4% reaching RON 308 million representing a margin of 18.9 pro forma margin as compared to 19.7 in the same period last year. Here the full effect of the acquisitions announced during 2021 and finalized is reflected, as I mentioned before, and Pharmachem is indeed playing a role being the distribution company which is with lower margins than the life group obviously. So the full effect of Pharmachem is integrated here. 92% also increasing net result leading to RON 123 million, which is 7.5% pro forma margin as compared to 5.9% in the same period last year. Regarding the split of net result, it is distributed 91% to group owners and 9% to NCI. The pro forma adjustments that we have included here are related to the acquired company for the period that they didn't were in the consolidation. So we have RON 20 million coming from Veridia. So for the 2 months, Medica Sibiu for 4 months period. We have for CED Pharma group 6 months, Pharmachem 7, Stomestet 10 months, Oradent 11 and NeoLife and Centrul Medical Irina for the full period. Moving to the consolidated statement of profit and loss. The operating expenses evolution, it's quite interesting in the sense that the dynamic is obviously changing. You will see 1.1 percentage points releasing EBITDA margin coming from a decreasing consumable materials and repair materials with 1.3 percentage points of sale. Here you can see the decreasing trend on PCR testing, but also the Pharmachem consolidation increasing commodities with 4.1 percentage points of sale, once again due to the consolidation of the pharmacies and the Pharmachem distribution company. And the decrease in third-party expenses and salaries expenses with 1.9 percentage points of sales. This is a combined effect of several results. The one is the cost cutting measures implemented in 2020, but also the changing the mix of services providing provided including the consolidation of the wholesale company. In terms of consolidated statement of financial position, there are no significant changes in the dynamics of the balance sheet. All figures are on an upward trend and this is expected coming with the consolidation of the companies acquired the 7 acquisitions performed during 2021. So I wouldn't stress that much anything from here on later in the questions and answer session. So you need something in particular. I would jump to the debt position. And from our net debt to protect -- net debt to EBITDA ratio, we can notice the same decrease that was there in the third quarter as well. So the net debt to EBITDA ratio is 2.1% with a very, very small increase in net debt during such period, so 0.2% from 2020 to 2021. In terms of consolidated statement of cash flow, it was characterized by increased operating performance. So there is a 1.7x increase in net cash coming from operating activities from RON 128 million to RON 214 million quite constant and in line with the evolution of the group in terms of investing activities, a 30% increase in investment year-on-year from RON 112 million to RON 146 million. While in terms of financing activities for this year, in particular, there was a net repayment position in the financing activities of RON 20 million rows. All in all, leading to a case in cash equivalent position for this period of RON 129 million. As an additional detail for the investing activities, you will see on the right-hand side the breakdown of the investments performed in the sense that there is a split in investment in business combinations, the purchase of intangible assets and also the purchase of property, plant and equipment. So 52% going to be a combination -- RON 52 million Ron going to business combinations, RON 5 million in intangible assets and the remaining of almost RON 88 million dedicated to the tangible assets side development, organic development and so on. I think this is my presentation for today. I thank you very much. And I propose to jump to the Q&A session. Thank you.

[Operator Instructions] And the first question is Bram Buring with Wood & Company.

Just a few questions, please. First of all, very simple one. With regards to the other revenues lines for the full year, how much of this was drug distributions out of RON 88 -- yes, out of this RON 88 million?

Was what?

Yes, hello, hello.

You said, Bram, I was just repeating the last slide because I didn't understand how much of the operating income was.

Now in other revenues, which was at RON 88-some-odd million for the full year, how much of that was distribution?

Okay.

First question. Second question is, with regards to third-party expenses, and I guess in particular cost of physicians, has the policy with paying physicians changed in any way? Because in the fourth quarter, I noticed a fairly significant jump in the percentage of expenditures going to third-party -- going to third-parties. If you could comment on that. And if the if the fourth quarter was just volatility or if that's more of a trend? And the last question with regards to your investment budget, that EUR 100 and EUR 120 million, that is over what period of time please?

Okay. So I would we start with your second question because I have it in front of me now. The answer would be no, there is no change in the policy. It is related indeed to the change, not volatility, it's basically a change in the mix of the group. Consolidated one for the third quarter -- for the fourth quarter, if you want to see this way, because in the third one, we missed one month of Pharmachem. So things are looking slightly different. And on the other side, you will see an increase in the performance of the outpatients unit that is usually with a higher connection with doctors -- with collaborating doctors. But only these type of thing that can contribute to a change in the mix, not related to changing our policy at all.

Okay. I'm sorry. Could you just repeat that last part? Which business has a higher percentage -- which part of the business is using a higher percentage of external doctors on a third-party basis?

Not higher but outpatient units performed well. So there is a lighter connection between the 2.

Okay, got you, although I thought I've adjusted for that. Okay. And then the other 2 please, if you could?

Yes. You are referring to the distribution for the whole period. So percentage out of total RON 88 million, right?

How much of that? Yes, how much of RON 88 million is drug distribution?

Not having right now a split of the 2. But in first quarter and the second quarter, we have on average of RON 5 million and this is something that is applicable for the next period also. So the rest of the business is RON 30 million up RON 88 million.

RON 30 million?

So RON 30 million would be, yes, 35%. So the difference is the distribution.

I'm sorry, you said 35% of that RON 88 million is other revenues excluding distribution?

Yes, yes.

35%. Okay.

So distribution covers.

And then the time frame for spending that EUR 100 million to EUR 120 million.

Yes, it would be a bit difficult to respond accurately because usually acquisitions tends to happen depending on the market and on the contact centers, more now with the geopolitical context, but the time horizon would be 2 to 3 years to complete to the acquisitions that we have in mind for this allocated budget. So I would say 2 to 3 years.

The next question comes from [ Cristian Popescu ].

I have a question, just to make sure I understood. In the RON 88 million other revenues around 35% come from drug distribution?

No, no, no. I said the other way. I computed how much amount is our other revenues which is mainly Central Banks from the total. So I said we have 35% coming from distribution, 35%. So the remaining 65% is the distribution business line.

Okay. So these are the revenues. What is in this other revenues included?

Revenue coming from the Central Bank.

Okay, okay. And just looking at the pricing idea, decreasing the average fee for laboratories and for pharmacies. Can you explain a little bit what's happened here and what should we look forward?

Yes, indeed. So in terms of laboratories, the average fee decreased naturally with the decreasing the PCR tests performed from 38% to 30% on average. So in terms of -- and in terms of pharmacies was a dilution of the sale per client after we have bought CED Pharma. The chain of 6 pharmacies has a different profile and they are located next to public units. So they came with the larger number of clients but tickets -- a lower ticket. So basically we say that from now on, the dynamics should change to this reality.

At the moment, there are no further questions. [Operator Instructions] We have no further questions. I hand back to the speakers.

Thank you very much for being with us today and for listening to us. I know that we are passing quite, let's say, challenging times with this geopolitical situation of Romania today. We are very confident that we are a NATO country and Med Life should keep the profile to still acquire and use all the opportunities to grow for the time being. It's not -- doesn't mean that we will accelerate. It doesn't mean that we will slow down. We'll just do what we are doing today. We have, as Alina has mentioned, 3 medium to large transactions ongoing. We have other 5 that started or so last year. We hope to finalize most of them as you know that some of them go ahead, some of them being stopped, we're dealing with family. And with founders, they have their own personal pattern into it. But -- and of course, we hope to finance all of them, but at least the majority. And also we are growing. We still as we're also working on this medical part that I hope in the first half of this year, maybe in July or August, we'll finalize the first move of some of them, [ ambulatory ]. And also we will start working on the hospital unit here in the new building, most probably moving some of the pediatric active in the same place in this half that is [indiscernible] and Medical Park. These are the main things about us. And thank you very much for being with us today. We look forward to the budget that we are going to present in one month by now. We don't intend, due to the geopolitical, to change the budget that has been prepared already in December, which is the 2-digit growth in the in the organic growth of Med Life, of course, except any kind of COVID in PCR activity, but that one is not something that we budget as long we don't have a perspective a clear perspective on the incomes to come from there. So that's what more or less but you are going to see. That also we have the -- this investments that you are asking some of you asking when is going to be disbursed. We hope that at least half of this amount to be used by the mid of this year. And the rest to be seen also and to be calibrated on the -- at the end of the day on the geopolitical of the of the region. Thank you very much for being with us. Have a good day.

Ladies and gentlemen, thank you for yet and then this conference has been concluded you may disconnect.