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

Ladies and gentlemen, welcome to the conference call of Medios AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand over to Claudia Nickolaus, Head of Investor and Public Relations and ESG Communications at Medios.

Ladies and gentlemen, welcome to our conference call on the results for the full fiscal year 2020. As in the past, all relevant documents can be download now from our Investor Relations website. Additionally, this presentation can be followed in parallel via the Internet link provided to you in the invitation. This call today is hosted by our CEO, Matthias Gaertner; and our CFO, Falk Neukirch. Matthias will start with a summary followed by Falk , who will then provide details on the financials for the fiscal year 2022 as well as on the guidance for 2020. And finally, Matthias will comment on media growth stories. Both Matthias and Falk will be available to answer your questions afterwards. I would now like to hand over to Matthias.

Thank you, Claudia . Also a warm welcome from my side. Thank you for joining this call and your interest in Medios Overall, '22 was a very successful year by far the best for Medios . And this against the background of the global crisis and uncertainty. We are proud to present a further set of excellent results today. Let's go directly to Slide 3, providing an overview what were the highlights for '22. First, we substantially strengthened our Patient-specific therapy segment, appreviated PST through the acquisition of new NewCo Pharma . The integration is on track, and we continue to realize good synergies and cross-selling effect. This is what we also expect for the agreement on the sterile manufacturing collaboration with upper taken [indiscernible] as part of the acquisition of BBW as of January 23. It is also worth to mention that the manufacturing in our new GMP lab in Berlin has commenced after receiving the permit last year. This was a significant step towards increasing our compounding capacity in the higher-margin segment patient-specific therapy. Furthermore, we will be able to prepare for compounding for next-generation medicines. The example, for example, in the field of personalized therapies. Those who attended our Capital Markets Day on November 24 for the first and look of our new cutting edge lit. Second, we have achieved the best financials in our company history, EUR 1.6 billion in sales and is disproportionately higher EBITDA, representing a substantial increase of the group margin to 3.4%, driven by the integration of NewCo Pharma and to a lower extent, also by organic growth. Furthermore, we posted strong operating cash flows and more than doubled [ EPA] . For '23, we expect growth with a revenue of up to EUR 1.8 billion and an EBITDA pre of up to EUR 63 million. And first, we started the implementation of our expanded growth strategy'25, presented at our Capital Market Day in November 22. We have particularly blessed that we have been able to recruit an internationally experienced senior manager, who will drive forward internationalization as part of the extended strategy, having this new department. I will come back to this later in more detail. In line with our growth strategy, we recently extended our operational activities by providing a [ renter ] nutrition of prematurely foreign basis quite challenging and complex service. Our ESG strategy is well embedded in the overall [ metal ] strategy. And we continue to successfully implement this strategy as well as further improving our ESG rating. In a nutshell, we achieved our target for '22. Also, we were impacted by the changed reimbursement scheme in our PST segment and the general economic uncertainties. We expect ongoing growth in '23. Falk will provide more details on our outlook later. Our mid- and long-term strategy, including internationalization will help us to mitigate further the potential negative effect of the general economic and regulatory environment. We are working on additional measures, which will also help us to offset the potential effect. We are very confident to successfully continue our growth story. Now let me share a short summary on the financials for the fourth quarter and full year '22, as illustrated on Slide 4. Slide 4 shows the strong continued quarterly growth of our 2 KPIs, revenue and EBITDA [indiscernible] until third quarter of '22 with the fourth quarter, reflecting the negative impact of the regulatory changes, which became effective on 1st of September 22. The full year figures on Slide 5 highlights the disproportionate EBITDA pre growth of almost 43% to almost EUR 55 million, also leading to higher margin. We have further expanded the share of the compounding business within the major portfolio as illustrated on Slide 3. This demonstrates the impact of the consolidation of NewCo Pharma since January '22, a remarkable increase of the share of PST business. Compared to last year, we increased the revenue share for PST from 5% up to 14%. And for EBITDA pre, we more than doubled the PST share coming from 21% up to now 43%. This development is fully in line with our strategy and goals to increase the share of the higher-margin PST business. Now let's move to my favorite Slide 7, which we have already shown in the past. It describes our strong net worth of meanwhile, around 700 specialized partner pharmacies, an excellent basis for our German expansion. The start of the compounding at our new GMP in Berlin helped to increase the Medios group manufacturing capacity in the higher-margin PST segment to up to 600,000 preparations per year. This new GMP lab is one of the most modern, safe and effective GMP laboratories in Germany. And it will enable us to work even more efficiently, make processes even safer and increase profitability at the same time. Based on our increased capacity and the agreement of manufacturing for AFS that we mentioned before, we target to compound more than 400,000 preparations in 23. On Slide 8, please find an update on our ESG activities. In terms of ESG, we have built a good foundation over the past 2 years. The ESG strategy provides us with the framework up to '25. And through the ESG Committee, sustainability is an integral part of all management levels. With the help of ESG software investment in '22, we have been able to expand the debt and spread of our ESG database 22 plus becomes our baseline year. Based on this, we can manage the targets and measures in '23. The focus will be on increasing energy efficiency, maintaining a female quota of over 50% in leadership positions and implementing the supplier code of conduct among other days. This is all from my side for the moment. I now hand over to Falk to provide more details on the financials for the full year '22 and on the guidance for '23.

Thank you, Matthias. Welcome also from my side. I will now give you a more detailed overview on the numbers focused in on the full year figures of 2012. The full set of financial figures can be 1found in the annual report on our website. Let's start with Slide 10 showing relevant key financials. As Sears already said, the financial year '22 was a very successful one from the U.S. Revenue increased by 18.7%, of 3.4% organically and 15.3% inorganically, resulting from NewCo Pharma acquisition. Even better, gross profit outperformed revenue growth significantly with plus 55.4%. So gross margin increased from 5.2% to 6.8% due to the higher share of PST business, also resulting mainly from the NewCo Pharma acquisition. So for net costs followed a higher headcount, the increase of personnel costs by EUR 11.7 million, 33.7 million is in the amount of EUR 10.2 million attributable to NewCo pharma acquisition followed by the development of central functions and increased variable board remuneration. The increase of other operating expenses by EUR 10.6 million to EUR 24 million above in the amount of EUR 7.2 million, driven by the integration of NewCo Group, followed by rising rental costs due to the increase in rental space for the new manufacturing site in Berlin. Further cost increases resulted from higher energy prices, consulting for strategy and post-merger integration project. Despite these higher expenses, EBITDA Pre grews by 42.8% and thus outperformed revenue growth considerably. EBITDA pre margin reached 3.4% compared to 2.8% in the previous year. The higher level of profitability also reflects in the -- it's also reflected in the development of earnings per share, which more than doubled from EUR 0.37 to EUR 0.77 in 2022. For your explanation, the adjusted EBITDA, so called EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 3.7 million, thereof for stock options, EUR 2.9 million and for M&A transaction costs, EUR 0.8 million. Depreciation and amortization climbed from EUR 19.4 million to EUR 22.2 million, mainly due to the amortization of customer-related intangible assets attributable to NewCo pharma. Of the EUR 22.2 million, almost EUR 14.8 million result from PPA roughly EUR 7.4 million result from non-PPA acquisitions and sale of EUR 2.9 million from -- sorry, IFRS 16 amortization difficult cost. Operating cash flow reached EUR 37 million despite extraordinary cash outflows for tax and total contribution payments for stock options of almost EUR 8 million in the first quarter of '22. Previous year operating cash flow was positively influenced by schedule stock reduction in hemophilia products, which were built up end of 2020 in the EPS report. The cash flow from investing activity was mainly impacted by 2 aspects. The net cash component of the purchase price for Newco acquisition of EUR 82 million and further operational investments of approximately EUR 5 million. The financing cash flow of minus EUR 40 million resulted primarily from the repayment of a syn loan in the amount of EUR 25.2 million and a scheduled repayment of former shareholder loans in the amount of EUR 9.8 million -- by end of 2020, Medios arranged a new revolving syndicated loan of EUR 75 million, of which EUR 25 million were from in January '23 to finance the latest acquisition of BBW. Cash and cash equivalents amounted to EUR 79.2 million at the end of the reporting period, down from EUR 168 million. The decrease is mainly a result of the cash component for NewCo Pharma acquisition, the repayment of former shareholder loans and the repayment of the former Syn Loan. The equity ratio meanwhile increased to 72-- sorry, 77.8% from 75.2% in the previous year. Let's go to Slide 11 and 12, where we did provide a breakdown of the organic and inorganic growth segment for fiscal year '22. Let's start with Slide 11. Revenue grew organically by EUR 46 million or plus 3.4%. The inorganic growth amounted to EUR 207.4 million or plus 15.3%, driven by the acquisition of NewCo Pharma. Around 73% of inorganic revenue growth was generated in the PST segment and the remainder in the year. The organic growth of EUR 46 million occurred almost entirely in the PST segment. However, the organic growth of PST the reached 10%. Slide 12 shows the EBITDA pre breakdown by segments for financial year '22. EBITDA pre grew inorganically by EUR 19.1 million, driven by the NewCo Pharma infiltration, thereof EUR 15.2 million were allocated to our [ PC ] segment and the remainder to [ PR ]. The increased demand for headquarter function customer integration efforts and strategic consulting costs, increased cost levels in the segment service. Let's now switch to Slide 13. As just explained, organic sales growth was almost 10% in the segment patient-specific therapies and overall segment revenue climb because of the NewCo Pharma acquisition. -- EBITDA pre rose respectively. This is fully in line with our strategy to focus on higher-margin products and to increase the share of the compounding business. The EBITDA pre margin decrease is a result of NewCo PST business with lower margins due to a different product mix and regulatory price reduction effective since September '22 for compounding of cytostatic ranks. As already highlighted by Matthias, the share of this segment PST in EBITDA pre of the group is above the target level of 40%, while PST revenue is at 14% of group revenue. This led to a higher group margin in total. Slide 14 provides an overview of our financing power, ready to be used for our growth brands, which will be satisfied in more detail by Matthias shortly. Overall, we have more than EUR 100 million of free funds available resulting from available cash and free funds from our new revolving credit facility. On top of that, we will ask for to a potential 10% capital increase to FDA approve at our forthcoming AGM in , which would even strengthen our financing power for future growth. Let's now switch to Slide 16 and 17. Our guidance for '23 has been communicated. Despite economic and regulatory uncertainties, we expect revenue to reach the range of EUR 1.6 billion to EUR 1.8 billion. EBITDA pre is expected to rise to EUR 56 million to EUR 63 million. As a consequence, the group EBITDA pre margin is again expected to improve. The guidance takes into consideration assumptions as outlined on Slide 17. Global uncertainties do still exist such as rising inflation and supply chain bottle. The impact from last year's regulatory price changes is considered in this guidance. However, the key message remains the same. Our growth cost will continue in 2023. A summary of our strategic priorities is outlined on Slide 18. With this, I hand over to Matthias.

Okay. Thank you, Falk. Now some words to our extended growth strategy '25 presented in November last year. Our plastic growth strategy is based on 3 pillars: first, developing and growing our business in Germany; second, expanding our compounding business into selected European countries; and third, diversifying into a prospective new business segments, namely manufacturing of advanced therapies. Let me first make some comments on how we will push forward our manufacturing business in Germany. By closing the white spots in our geographic coverage of our partner network, especially in Bavaria and/or Eastern Germany. Remember the map of Germany, for example, by acquiring respective labs and/or compute cooperation agreement as well as by rolling out major Connect, our innovative digital platform for the PST business. By increasing the number of [indiscernible] behind our partner pharmacy by diversifying and expanding major indication areas. The most recent example is that we started to provide parenteral nutrition for prematurely born babies. Therewith, we offer highly specialized and very sophisticated services and help the German health system to prevent a gap in care. We want to again expanded our product range and diversified our customer groups, mainly to include hospital pharmacies. As we are already extremely well positioned in Germany, the next logical step we see expansion into European countries with higher margins and attractive growth rates. Let's go to Slide 19, which provides an overview of the 4 countries we selected mainly U.K., the Netherlands, Belgium and Switzerland. And the reason for which they were selected out of 12 screens European countries. The cumulative specialty pharma spend of these 4 priority type countries is around EUR 17 billion. Hence, the same size of the total specialty pharma spend in Germany, which will double our potential market. What is our preferred plan for the expansion into other European countries. It would be titled to acquire sterile GMP labs to manufacture patient-specific therapies in these countries. We already demonstrated our ability to successfully operate and integrate Berlin GMP lab. We are very pleased to inform you that we will strengthen our international team with a highly experienced executive in the European specialty pharma market. As from April 1, [indiscernible] an icon will join Medios ahead of international business development. I'm sure some of you will already know constant plan. He started nationality has 15 years former experience and has an extensive knowledge of and network in the European specialty pharma market. We are focused to accelerate our geo [indiscernible] expansion as part of our strategy. By internationalizing our business, we can further strengthen our market position and at the same time, diversify our customer groups to become more independent of German health care regulations. Slide 20 provides some information on the third and last pillar of our expanded growth strategy entering the groundbreaking personalized medicine market summarized under the term advanced therapies, meaning medicines based on genes, tissues or cells all expensive and complex therapies. This fits well as we are already a trusted partner for high value and complex drugs in Germany. Advanced therapies are a rapidly growing market with annual growth rates of around 18% until '25 and the market volume of globally EUR 13 billion, excluding COVID vaccine. Some of the advanced therapies require patient-specific approach, and we bring extensive experience in this field. Due to the increasing number of small- and medium-sized pharmaceutical companies, hence, the increasing number of products at the commercial stage, a higher degree of outsourcing is expected, and this can be conducted by Medios . In addition, there are already widespread capacity shortages in the manufacturing of novel therapies and market experts expect capacity to lack demand in the future. All these trends about our strategy of complementing the manufacture of patient-specific trust with the manufacturing of personalized therapy. In other words, this is the logical next step in the Medios growth strategy. We can achieve these objectives both through organic growth for example, by adapting and using existing laboratories to produce personalized therapies and by acquiring other companies. Currently, we are reviewing our lease of potential M&A targets, including European countries. As outlined by Falk, we have a strong financial basis that enables the financing of our extended growth strategy. Before I conclude the presentation, let's switch to Slide 21. At our Capital Markets Day, we presented our group midterm target, 25 to 27 for the first time. One of our main goals is to further increase our EBITDA pre margin. That's why we want to tap further opportunities, which will enable us to achieve our objectives. -- internationalizing our business and by potentially launching new segments, respectively, new services, all within the field of specialty pharma. By implementing our extended Strategy '25, we aim to achieve a medium-term target of EUR 2 billion in revenue and an EBITDA pre margin in the mid-single-digit area. Ladies and gentlemen, this concludes our presentation. We hope to see you in person at the conference soon or to hear you at our next earnings call on May 1. Thank you for your attention. Falk and I are now available to answer your questions.