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.

Welcome, everybody, to our earnings call for the first 9 months 2024. As always, all relevant documents can also be downloaded from our Investor Relations website. Additionally, this presentation can be followed in parallel via the Internet link provided to you in the invitation. Today, with me is our CEO, Matthias Gaertner; our CFO, Falk Neukirch; and our CIM, Constantijn van Rietschoten. Matthias will start with an executive summary, followed by Falk, who will then provide details on the financials for the first 9 months of 2024 and the guidance for 2024. Finally, Matthias will comment on the status of Medios growth strategy. After the presentation, we will begin the Q&A session. I would now like to hand over to Matthias.

Thank you, Claudia. Ladies and gentlemen, welcome to our conference call for the first 9 months of 2024. Overall, we posted strong 9 months figures and an excellent third quarter '24, the best quarter ever. The main highlights of the third quarter '24 are shown on Slide 3. Let's start with the financials of group level. Earnings were up significantly in Q3. For the first time, we reached the 5% mark for our EBITDA pre margin, mainly driven by PST and Ceban. And worth to mention, PST has achieved a turnaround in earnings with an EBITDA pre growth of more than 10% compared to Q3 '23. Now some comments to the financials for the first 9 months. We achieved a revenue growth of more than 4% to EUR 1.4 billion and a disproportionate EBITDA pre increase of more than 20% to EUR 55.8 million. Our segment International Business is included for 4 months from June to September, and we are very happy with the performance of Ceban in these first months of consolidation. We are also happy that our strategy to trade in lower-margin revenues for higher-margin revenues is working, especially in the Pharmaceutical Supply. This helped to improve our margins as well. We posted a strong operational cash flow of EUR 27.6 million, a plus of more than 100% compared to the same period last year, and we confirm our guidance '24. Falk will provide more insights on the financials later. The integration of Ceban is well on track and progressing very smoothly and quickly. When we look at synergies, we are mostly focusing on the cross-selling opportunities and best practices and knowledge sharing, plus, of course, the economies of scale that the combination will benefit from. First steps have been taken here, and we clearly see the potential benefits, but it is too soon to already see them reflected in the Q3 results. Briefly on Slide 4, you can see the status of our European platform, which gives us a leading position in the specialty pharma compounding in Europe. This European network is an excellent basis for our further European expansion and the realization of synergies and cross-selling opportunities. Furthermore, it will support the development of our activities in the field of advanced therapies, the future of individualized medicine. In August, shareholders approved an expansion of the Supervisory Board from 4 to 5 members at our AGM. Following the AGM, an ESG committee was implemented by the Supervisory Board, which is headed by its Chairman. And as already outlined at our H1 earnings call, we are proud that Medios was reincluded in the SDAX Index on July 15. Now some further comments on the financials for Q3 and the first 9 months of '24. Slide 5 shows the quarter-on-quarter development of our 2 KPIs, revenue and EBITDA pre. In Q3 of this year, EBITDA pre and the respective margin grew disproportionately. We reached the 5% EBITDA pre mark for the first time. This was mainly a result of the contribution of our segment International Business, in short, IB; the earnings growth in the PST business in Germany and overall higher margins in the PS business. This very positive development is also reflected on Slide 6, illustrating the disproportionate EBITDA pre growth of more than 40%. Now the same illustration for the first 9 months shown on Slide 7. Whereas revenue for the first 9 months '24 remained almost flat, EBITDA pre strongly grew by more than 20% compared to the first 9 months of '23. As already mentioned, this is fully in line with our strategy to further focus on margin improvement. This is all from my side for the moment. I now hand over to Falk to provide more details on the financials for the first quarter, the first 9 months of '24 and the guidance for '24.

Thank you, Matthias. Also welcome from my side. I will give you a more detailed overview on the financials for the first 9 months of '24, including the third quarter. The full financial statements can be found on our website. 9 months and Q3 financials are characterized by Ceban's strong contribution for 4 months shown in our new segment International Business. Let's start with Slide 9. All in all, we had a good first 9 months '24 with a strong and disproportionate EBITDA pre growth. Revenues increased by 4.3% to EUR 1.4 billion, mainly driven by the operational segment, Pharmaceutical Supply and International Business. Gross profit increased to EUR 107.3 million with a higher gross profit margin of 7.7% compared to 6.2% in the previous year. The increase in gross profit was mainly contributed by PS and IB segments. PST gross profit decreased due to the deconsolidation of Kölsche Blister in June '23, regulatory headwinds and higher performance-based payments for additional compounding orders. The increase of personnel costs by EUR 9.7 million to EUR 35.8 million results from the consolidation of Ceban, a plus of EUR 9 million, as well as the provisions for bonuses for the successful completion of the Ceban acquisition. Other operating expenses increased from EUR [ 16.1 ] million to EUR 27.4 million. Of this increase, EUR 6.3 million were caused by Ceban. The remaining amount was mainly due to the higher legal and consulting costs, largely attributable to the acquisition of Ceban, EUR 2.6 million; and ERP implementation costs, EUR 1.5 million, both extraordinary expenses, which were adjusted under EBITDA pre. The disproportionately higher EBITDA pre of EUR 55.8 million compared to EUR 46.3 million resulted in a strong EBITDA pre margin of 4.0%, mainly impacted by the very good EBITDA pre margin of the segment IB and our continuous efforts to improve the margins of the existing business. EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 11.7 million compared to EUR 4.8 million last year. This consists of EUR 1.1 million expenses for stock options, EUR 4.3 million for M&A-related costs, mainly due to the Ceban acquisition; EUR 4.8 million performance-based payments for increased compounding volumes and EUR 1.6 million for ERP system implementation. Depreciation and amortization rose to EUR [ 21.8 ] million. The increase compared to previous year period is attributable to the Ceban Group. The financial result of minus EUR 5.9 million is EUR 4.4 million below previous year level and mainly includes accrued interest and costs for the financing of the Ceban acquisition. Consequently, undiluted EPS for 9 months '24 decreased from EUR 0.69 to EUR 0.43 because of raised depreciation and amortization, higher interest payments due to the acquisition of Ceban and furthermore, due to the adjusted extraordinary expenses, which mainly increased because of significantly higher M&A-related expenses and ERP implementation costs. In the first 9 months, we generated a strong operating cash flow of EUR 27.6 million that more than doubled compared to previous year period. This mainly resulted from the higher operating result, plus EUR 2.6 million and a lower net working capital increase compared to the beginning of the year, minus EUR 11.9 million, mainly because of inventory levels, and trade receivables have been actively managed in '24. Lower tax payments in the reporting period compared to the previous year had a further positive impact on operational cash flow. And consequently, we posted a strong free cash flow before M&A of EUR 24.0 million. Investing cash flow of around minus EUR 221.3 million reflects primarily payments made for the acquisition of Ceban Group, approximately minus EUR 100 million and the repayment of Ceban loans. approximately EUR 127 million, less acquired cash of EUR 6.2 million. The share contribution, which was part of the consideration transfer, is not included here. Financing cash flow of EUR 190.3 million reflects the drawing of the EUR 200 million bridge loan for the Ceban acquisition in June '24, less interest payments of EUR 4.9 million for commitment fees and loan drawings in the reporting period. Payments for rental agreements, minus EUR 3 million and the repayment of working capital line of EUR 1 million. Cash and cash equivalents of roughly EUR 68 million consisted mainly of unrestricted bank deposits. The equity ratio decreased from 78.8% by end of '23 to 55.6% by the end of the first 9 months '24 because of raised debt amounts for the acquisition of Ceban and the replacement of Ceban loans. On Slide 10 and 11, we provide a breakdown of the organic and inorganic growth by segment for the first 9 months '24. Inorganic growth reflects the contribution of Ceban for 4 months fully allocated to the operational segment IB. Let's go to Slide 10. Revenue grew organically by EUR 9.8 million or plus 0.7%. Inorganic revenue growth amounted to EUR 47.3 million or plus 3.5% due to the acquisition of Ceban. Slide 11 shows the organic and inorganic EBITDA pre breakdown by segment for the first 9 months of '24. EBITDA pre increased inorganically by EUR 9.8 million or 21.1%, fully dedicated to the segment IB. The slight decline of organic growth was compensated by the strong contribution of IB. Increased personnel and other operating costs for central functions are reflected in the segment services. Let's go to Slide 12, providing an overview on the segments. The 4.2% increase of group revenue is mainly driven by IB for 4 months and to a lower extent, by Pharmaceutical Supply. The external revenue of the PS segment rose by 2% to around EUR 1.2 billion. External revenue generated by the PST segment decreased by 7.7% to EUR 161.6 million, a decline of EUR 13.4 million. Around EUR 6 million of this decline are attributable to the sale of Kölsche Blister in June '23. In addition, as already mentioned, regulatory price adjustments as well as higher performance-related payments for the acquisition of compounding volumes had also a negative impact on revenue in the reporting period. The IB segment contributed EUR 47.3 million. Please keep in mind that it is too soon to already see any synergies deriving from the Ceban acquisition reflected in the 9 months results. EBITDA pre for the PS segment amounted to EUR 37.0 million, a plus of EUR 3.3 million or 10%. The EBITDA pre for the PST segment declined by around EUR 1.1 million to EUR 16.7 million, 6.1% below the previous year, mainly due to the described effects I already mentioned. However, it is important to mention that PST posted an 18% EBITDA pre growth in Q3 '24 compared to the previous quarter and more than 10% growth compared to the previous year quarter. This is a turnaround. Ceban contributed with a very strong EBITDA pre of EUR 9.8 million for the period June through October '24 and a margin of 20.7%. Slide 13 provides the status information on the debt financing. We financed the main part of the cash component of the Ceban acquisition by a bridge facility of EUR 200 million. The bridge facility has common market interest rates. Adding other debt items and considering the cash of around EUR 68 million, the net debt amounts to approximately EUR 166 million on September 30, '24. The syndicate loan was not drawn on September 30, '24. As said at our 6 months earnings call, we shortly intend to replace the bridge facility by the [ following ] financing facility with a total amount of EUR 225 million, consisting of 2 facilities. Facility A will be a term loan of EUR 125 million with a term of 5 years. Repayment will start in March '25. Facility B, a revolving credit facility of EUR 100 million with a term of 5 years and the option to extend 2x for further year. Furthermore, it has a step-up option of EUR 50 million. facility B will be available to finance future growth. The bank syndicate for the financing facilities will be -- will comprise 9 banks. Based on an estimated future free cash flow less interest payments, an annual amount of EUR 30 million to EUR 40 million would be available for repayment of facility A starting as of March '25. Let's go to Slide 15, providing our guidance for the full year '24 for the Medios Group, including Ceban. We confirm our guidance for '24. For '24, we expect revenues to reach the range of EUR 1.9 billion to EUR 2.1 billion and EBITDA pre is expected to be in the range of EUR 82 million to EUR 91 million. The EBITDA pre forecast is negatively impacted by the 1 month later change of control of Ceban Group than originally planned and regulatory price adjustments in Germany. We expect EBITDA pre growth to be at least 35% with a substantially higher EBITDA pre margin of around 4.3%. The EBITDA pre guidance includes integration costs, but it is adjusted for extraordinary expenses like M&A-related costs, expenses for stock option programs, performance-based payments for compounding volumes and implementation costs for an ERP system. A summary of our strategic priorities is outlined on Slide 16. For this, I hand back to Matthias.

Thank you, Falk. Our growth strategy has strongly advanced with Ceban. Its 3 pillars are outlined on this slide. In addition to strengthening our core business in Germany, Ceban will enable us to further expand our operations into other European countries. And we believe Ceban positions us strongly to benefit from the very positive compounding dynamics in certain European countries, also driven by an evolving, more favorable regulatory environment. Also, we intend to further diversify our business model by entering the production of advanced therapies, meaning medicines based on genes, tissues or cells, all expensive and complex therapies, the future of individualized medicine. This is a very good fit for Medios, as we are already a trusted partner for high-value drugs in Germany, and we will be one in our new European markets as well. Medios aims to exploit the enormous potential of cutting-edge health care technologies in the field of advanced therapies and thus generate additional added value for society. We will use our state-of-the-art GMP labs in Germany and Europe as well as our expertise in compounding to make highly -- high-quality personalized therapies available to all patients. This shows that there is a lot of potential ahead for Medios. Our growth story is well on track. Thank you for your attention. Falk, Constantijn and I am now available to answer your questions. Operator, could you please read out the instructions.