Medios AG (ILM1.F) Earnings Call Transcript & Summary

Good afternoon, and welcome to the conference call of Medios AG. At our customers' request, this conference will be recorded. May I now hand you over to Matthias Gaertner, CFO of Medios AG.

Hello. Good afternoon, ladies and gentlemen. Thank you very much. So we are pleased to welcome you to today's conference call on the preliminary results for H1 2020 and the update of our guidance as well. So with me on the call is Manfred Schneider, CEO of the Medios Group; and Claudia Nickolaus, Head of Investor and Public Relations. I will start with an overview on our preliminary figures for the half -- for the first half of 2020. And then Manfred will elaborate on the corona-related effects on our results and the overall situation of the operational business. Afterwards, we also will be happy to answer your questions. And again, I would also like to inform you that the conference call will be recorded and later on posted on our website. So let me start with the corona-related special effects we had in the results in the first half of 2020. So we already reported in the first quarter that the stockpiling that began in the first quarter as a result of the quota allocation, which was implemented on the 20th of March 2020. Certain trucks were carried out at a lower purchase price, and that led to lower margins than planned. And unfortunately, and unexpectedly, this effect continued throughout the second quarter as well. And therefore, Medios now expect that this extraordinary development will continue into the second half of the year as well. What does it mean in figures? So that means that the cost of goods sold for the truck supply segment, originally was planned for 2020 at 96.3%. And after the first half of the year, we now have 97.3%, which is 1% worse than expected. And that means if we have a look at the revenues of EUR 260 million in the first half of 2020, but the result is reduced by EUR 2.6 million against the forecast. If we calculate this for the whole year 2020, where the planned sales for the Pharmaceutical Supply segment are around EUR 560 million. So 1% out of the EUR 560 million is around EUR 5.6 million, which will be the impact on the result. On top of that, we have some one-off special effects for M&A activities, such as the already completed takeover of Kolsche Blister GmbH as well as ongoing market observations and discussions and talks. We have 2 potential partners. In figures, this totals to around EUR 800,000. And together with the EUR 5.6 million, you can see this is EUR 6.4 million impact on the planned results. And these numbers -- this led to our adjustment of the forecast because now we have to assume that this situation we will have until the end of the year. And for that, we adjusted the forecast. So now we expect group sales of around EUR 610 million to EUR 630 million. Previously, it was around EUR 610 million to EUR 670 million. We also adjusted the EBITDA to around EUR 14 million to EUR 15 million. Previously, this was EUR 19.5 million to EUR 22.5 million. And we adjusted the EBIT to around EUR 11.5 million to EUR 12.5 million, which was previously around EUR 17.5 million to EUR 20.5 million. It is also important to know that these numbers include as planned, the -- okay. So sorry for that technical issue. We are back. So as planned, these results also include first investments totaling around EUR 2.6 million in the first of 2020. For example, to prepare the IT infrastructure for the introduction of the e-prescription, which will be mandatory as of 2022. So it's very important for us to care about that and to invest into this very important future topic. In addition to that, we also invested in expanding the indication areas into hemophilia, which will start in September of this year and which -- it's a huge big market, which will open up in September and which gives us a lot of opportunities. And we assume that the hemophilia market already this year, will contribute around EUR 500,000 to our results. And the e-prescription will contribute as of January 2020, as already mentioned as then it will be mandatory. So -- also important and interesting to know for you is that the operating cash flow in the first half of 2020 was positive. It was more than EUR 6 million. So you can see we have a strong positive operating cash flow. And on top of that, the liquidity at the moment is around EUR 70 million, almost no debt. So you can see we are very strong and we have a very strong setup to also participate in the consolidating market in the future. So as a conclusion, we can see or we can say that our earnings are strong enough that investments in future business development and growth are possible. Also operating results for the first half of this year is burdened by special effects due to temporary higher prices on the procurement side. And therefore, we are very confident that our gross cost will be continued. And so we also released the first time long-term guidance that we expect that we will reach sales of more than EUR 1 billion by 2023, the latest. Thank you very much. Now we will hand over to Manfred, who will explain the quota allocation.

Yes. Thank you, Matthias. Also a warm welcome from my side. I'm pleased to give you some more insights of the overall situation right now. When in February, the Corona pandemic began to spread around the world, we became aware of this development and quickly implemented precautions. Consequently, we started to increase our inventory levels to extend the range. And although we had no shortage at that time, we were and we are constantly in close contact to our suppliers in order to still well informed of the extent of which supply chain could be affected. Our overall gain to ensure the supply of our customers and not to risk eluding them in the future. This is very important for us. in March, like Matthias just mentioned, a quota system was implemented in Germany by the Federal Institute for drugs and medical devices. This general order applied to the pharmaceutical industry, including wholesalers for the storage and demand-oriented supply of drugs. The aim of this quota system is to prevent hoarding of pharmaceuticals as we saw excess of stockpiling and to prevent future supply bottlenecks. I will come back to this in a couple of minutes. Furthermore, it has to be avoided that those drugs are going to be exported to other countries because of its low price. So far pharmaceutical industry is still acting in the sense of the arrangement. The general fear in the market is now that Corona will lead to shortages even with the borders. And we have seen first bottlenecks and these bottlenecks are becoming even worse with Corona. So general supply bottlenecks for the classic oncological generics, I will explain a little bit in special further on. And there are prices at the lowest level, and therefore, the German market becomes more unattractive for the pharmaceutical industry. From April onwards, the quotas on orders have been placed by pharmaceutical manufacturers and which is limited to the average purchasing level of the previous year. And as a result, ordering volumes have not been completely delivered, and we had to order from full range wholesalers, for example, of course, with the lower margin. And in addition, we have more than 100 additional pharmacies as customers. And because of that, our order volume has increased significantly. During the second quarter, we were informed by many pharmaceutical manufacturers that our supply quota will be adjusted to the average level of the previous year, what I just mentioned. And this was a huge challenge for us at Medios as a growing company. Larger order volumes were canceled or reduced. And yes, I would like to give you an example, and I got this information today. Our actual need for, let's say, product x for August is 800. Maybe we could sell 1,000, but it is 800. Our allocation from the delivering company is 400 for August. And today is the 6th of August, and we have 8 packages in stock. So it means today, Medios has delivery bottlenecks of several oncological products. And this just described effects were further enhanced by the Corona dynamic. So the disturbed flow of goods from Asia to Germany as a fact. And each country was worried about getting into supply bottlenecks as well, resulting in heavy regulation and competition between several countries. Even the German Minister of Health had considered stopping exports of pharmaceutical drugs by law. So what is our conclusion? We assume that this situation will not change or improve significantly by the end of 2020. This is what Matthias already mentioned. Finally, the question is whether we continue to buy drugs at higher prices in order to be able to deliver and take lower margins into our account or if not, we possibly disappoint or lose our customers. Of course, we try to prefer to satisfy our customers, as you can imagine. So we are confident to continue the growth of Medios. Our sales force is active again. After being [ emittance ] since March, our business model is intact, and we have a strong demand, as you could see, we could even further increase sales if drugs were well done. We are investing in growth. Some examples. We have a new indication of hemophilia, what Matthias said starting in September. We are going to explore the business, the blistering business. You know about our M&A deal a couple of months before, and we will expand our compounding business with patient-specific therapies, and we are investing in our new building with a possibility to triple our production capacities. And at last due to further consolidate in market, we have a good potential growth via M&A as well. So thank you for your attention. With this, we would like to move into our Q&A session. May I now ask the operator to coordinate the questions. So -- and we look forward to talking to you again at our next conference call. Goodbye.