Medios AG (ILM1) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the conference call of Medios. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand over to Claudia Nickolaus, Head of Investor Relations -- no, sorry, Head of Investor and Public Relations and ESG Communications at Medios. Please go ahead.

Thank you. Welcome, everybody, to our earnings call for the first half of 2025. As always, all relevant documents can 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; and our CFO, Falk Neukirch. Matthias will start with an executive summary, followed by Falk, who will then provide details on the financials of the first half of 2025 and the guidance for 2025. Finally, Matthias will comment on our growth story. 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 half of '25. Let me start with the highlights and achievements for the first half of '25 on Slide 3. We had a very good first half of the year, and I'm proud to present the positive development today together with my colleague, Falk. Again, we posted increased profitability, and I would like to highlight the strong organic earnings growth. Revenue grew by 9.3% to almost EUR 1 billion, now standing at EUR 992 million. All segments contributed to growth, meaning organic and inorganic growth. EBITDA pre again increased disproportionately by 48.8% to EUR 46.3 million, driven by all 3 operational segments. Regarding EBITDA contribution, we are very satisfied with both the PS and the PST segment. Only the International business segment fell slightly short of our expectations. However, we are confident about future development here. I'm particularly pleased with the organic earnings growth of 12.3% on EBITDA pre level that significantly exceeded our target of growth in the mid-single-digit range. Consequently, we substantially improved our EBITDA pre margin from 3.4% for the first half of '24 to 4.7% for the first half of '25. Furthermore, EPS increased by 85.2% to EUR 0.50. EPS adjusted increased by 34.1% to EUR 0.96. At the request of various investors, we will now also report on the adjusted EPS every quarter. The strong and recovering operational cash flow in Q2 almost compensated for the negative working capital swing effects on the first quarter. All in all, we have once again succeeded in increasing our overall profitability. This confirms the operational strength of our company and our strategy, which is focused on increasing margins while maintaining growth. Based on these results, we fully confirm our guidance for the year '25. Falk will provide more insights into the financials later. Now a brief update on the search for a new CEO. As outlined in our last earnings call, I have decided to step down as CEO and do not stand for another term of office. There's already a short list of CEO candidates so that the Supervisory Board could come to a decision quite soon. I'm still confident that I will be able to hand over to a successor ensuring a smooth transition until 31st of December '25 at the latest as agreed with the Supervisory Board. Furthermore, it is worth mentioning that our shareholders approved all resolutions proposed by the Executive and Supervisory Boards at our Annual General Meeting in May with a large majority of more than 90%, certainly, one of the best AGM voting results we have ever had. More to this in a minute. We have also made progress in implementing our growth strategy, and we are fully on track with the integration of Ceban and our growth initiatives. In the second quarter of '25, all planned integration steps have been successfully completed. This enabled the Ceban team to shift their focus fully towards commercial and business development opportunities, utilizing the strong and leading platform of both Medios and Ceban. The first synergies were realized in the beginning of '25, and we successfully continued this momentum into the second quarter of '25. Looking ahead, we remain focused on further unlocking the full potential of synergies between the 2 companies. This process is strongly supported by our European platform, giving us a leading position in the specialty pharma compounding in Europe. This network is an excellent basis for our further international expansion, 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. For the first time, we successfully conducted a share buyback of 1 million Medios shares, representing 3.92% of our current share capital. Therewith, we have responded to the wishes of many shareholders and to our conviction that the share price does not reflect the full value and potential of Medios. Furthermore, we might use these treasury shares depending on capital markets and business developments for stock option plan or as currency in M&A or withdrawal and capital reduction. Falk will present the details of the program shortly. Let's switch to Slide 4, providing a short overview of selected agenda items for our last AGM, which took place on May 27. As said, all proposed resolutions were approved by a large majority of shareholders. With these AGM resolutions, we have a modern remuneration system for the Executive Board in place with the new component operational cash flow, replacing inorganic growth as part of the short-term incentive. An overview of the current remuneration system can be found in the appendix of the presentation. We launched an attractive new stock option plan '25 and implemented the related conditional capital. We received a new authorization to issue convertible bonds and that representing the respective conditional capital. In a nutshell, we are well financed and ready and well positioned to continue implementing our growth strategy by financing strategic investments, supporting M&A activity or advancing our internationalization efforts. Now some further comments on the financials for the first half of '25. Slide 5 shows the quarter-on-quarter development of our 2 KPIs, revenue and EBITDA pre. For the first time in our company's history, we have exceeded the EUR 0.5 billion revenue mark in one single quarter, while significantly increasing the EBITDA pre margin of the second quarter '24. In Q2 of '25, EBITDA pre and the respective margin of 4.6% grew significantly compared to last year. This was driven by positive momentum from all operating segments and our strategic focus on higher-margin products. This positive development is also reflected on Slide 6, illustrating the revenue and disproportionate EBITDA pre growth for the first 6 months, whereas revenue increased by 9.3%, EBITDA pre grew strongly by 48.8% with a corresponding margin of 4.7% compared to 3.4% in the first half of last year. As just stressed, this is fully in line with our strategy to focus on higher-margin products to achieve an overall 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 half of '25 and the guidance for '25.

Thank you, Matthias. Welcome also from my side. I will give you now a more detailed overview of the financials for the first half of 2025. You can, of course, find the full financial statement on our website. Let's go to Slide 8. All in all, we had a strong first half year 2025. Revenue rose by 9.3% to EUR 991.7 million, mainly driven by the operation of segment IB inorganically and PS organically. Gross profit of Medios Group improved significantly to EUR 101.1 million from EUR 60.4 million in the previous year. This is an increase of EUR 40.8 million and a substantial increase of the gross profit margin to 10.2% compared to 6.7% in the previous year. This improvement is mainly caused by the inorganic contribution of the segment IB, which contributed EUR 30.1 -- EUR 31.8 million gross profit and higher gross profit margins. Gross profit of the PST segment rose by EUR 4.9 million and reached a gross profit margin of 23.6%, compared to 19.9% in the previous year. This was caused by organic growth, a better product mix, but also the elimination of performance-based payments for compounding orders in the amount of EUR 3.3 million. Gross profit of PS segment increased organically by EUR 4 million, reaching a gross profit margin of 4% compared to 3.6% in the previous year, also reflecting the focus on revenues with higher margins. Personnel costs rose by EUR 15.5 million to EUR 35.9 million. The essential part of the growth of EUR 13.5 million is attributable to segment IB. In addition, an amount of EUR 0.5 million is caused by a modest personnel cost increase in PS and PST. As an extraordinary cost item, EUR 1.3 million personnel expenses of segment Services are attributable to the communicated termination of Executive Board contracts. Other operating expenses rose from EUR 15.4 million to EUR 23.0 million, an increase of EUR 7.6 million, thereof EUR 7.2 million attributable to segment IB. The EBITDA pre increased to EUR 46.3 million compared to EUR 31.1 million in the previous year, mainly following the gross profit development. The EBITDA pre margin increased to 4.7% compared to 3.4% in the previous period and was supported by the EBITDA contribution of the segment IB and the organic growth of PS and PST also by focusing on higher-margin products. EBITDA pre was adjusted by extraordinary expenses in the amount of EUR 4.1 million compared to EUR 6.6 million last year. These expenses mainly consist of EUR 2.4 million for ERP system implementation, EUR 0.4 million expenses for stock options and EUR 1.3 million one-offs related to the change in the Executive Board. The decline in overall adjustments is mainly attributable to the discontinuation of performance-based payments for increased compounding volumes in '25. Depreciation and amortization increased significantly by EUR 6.9 million to EUR 18.8 million, largely due to the acquisition of the Ceban Group. Of the total amount of -- for depreciation and amortization, EUR 12.1 million are attributable to the amortization of customer base, EUR 2.6 million are attributable to lease assets and the remaining amount of almost EUR 4 million belongs to operational depreciation. The financial result of minus EUR 4.3 million decreased by minus EUR 2.8 million and mainly includes interest expenses for the tranches utilized from the facilities of the existing syn loan, which amounted to EUR 167.5 million at the reporting date. The tax expense rose from EUR 3.7 million to EUR 5.4 million, reflecting a tax rate of 29.7% compared to 36.8% in the previous period. The decline in tax rate is mainly caused by nontax deductible expenses in the previous year. Due to the strong performance of all operational segments plus the described reduction in extraordinary expenses, the net result almost doubled to EUR 12.7 million despite higher depreciation and financing costs. Thus, earnings per share rose from EUR 0.27 to EUR 0.50, an increase of 85.2%. As outlined by Matthias, for the first time, we've reported also the adjusted earnings per share that amounted to EUR 0.96 versus EUR 0.72 for the first 6 months '24. This figure is based on the net result after tax adjusted for extraordinary expenses, PPA depreciation and amortization as well as corresponding tax expense adjustments. Due to reporting date related net working capital effects, the strong operational performance of the first half of 2025 is not fully reflected in the operating cash flow of EUR 23.4 million. This is mainly due to a rise in trade receivables in the segment PS and IB at the reporting date. Free cash flow of EUR 20.5 million is consequently also impacted by the same net working capital effects. Investing cash flow of minus EUR 0.9 million reflects CapEx of minus EUR 2.4 million and subsequent accrued purchase price payments for the acquisition of Ceban of minus EUR 1.5 million as well as cash inflows of EUR 2.4 million from the disposal of fixed assets and the sale of a pharmacy in the Netherlands. Financing cash flow of minus EUR 40.9 million reflects total repayments of EUR 32.5 million of the syn loan facility, consisting of minus EUR 12.5 million scheduled redemption of the term loan and minus EUR 20 million net repayments of the revolving credit facility, interest payments of minus EUR 5.7 million, mainly related to syn loan facilities and lease liabilities repayments of minus EUR 2.5 million. Cash and cash equivalents of EUR 87.8 million by the end of the reporting period consisted mainly of freely available bank deposits. The equity ratio increased from 54.6% at the end of December '24 to now 57.0%. On Slide 9 and 10, we provide a breakdown of the organic and inorganic growth. Slide 9 shows that inorganic revenue growth amounted to EUR 66.9 million or 7.4% fully dedicated to the IB segment. Organically, revenue increased by EUR 17.6 million or 1.9%, mainly by focusing on higher-margin revenues in segment PS. Slide 10 shows the organic and inorganic EBITDA pre breakdown by segment. EBITDA pre increased inorganically by EUR 11.4 million or 36.5% fully dedicated to IB segment. Also, both PS and PST show organic earnings growth. The EBITDA pre development in segment Services reflects a thoughtful structural expansion of the new strategic segment Advanced Therapies, but also increased Board remunerations. Let's go to Slide 11, providing an overview of the segment. The 9.3% increase in group revenue is mainly driven by IB and to a lower extent, by PS and PST. The external revenue of PS segment increased by 1.5% to EUR 800.1 million and of PST segment by 2.5% to EUR 110.2 million. The IB segment contributed EUR 81.1 million external revenue in the first 6 months '25, which is an increase of EUR 69.6 million. EBITDA pre for the PS segment amounted to EUR 26.4 million, a plus of EUR 3.5 million or 15.4%. EBITDA pre for the PST segment increased by around EUR 1.2 million to EUR 12.1 million or 10.8%. IB contributed with an EBITDA pre of EUR 13.8 million for the first half of '25 and a margin of 17%. As outlined by Matthias, IB is slightly below our expectations, but we are confident that the segment will develop positively. Slide 12 provides status information on the recent financing structure. In November '24, the debt financing of Medios was replaced by a syn loan facility in a total amount of EUR 225 million, consisting of 2 tranches, a term loan facility of EUR 125 million with a term of 5 years, repayment started in March '25. And for the first half '25, we repaid EUR 12.5 million and a revolving credit facility of EUR 100 million, also with a term of 5 years. The RCF has a term extension option of up to 2 years and a step-up option of further EUR 50 million to finance future growth. An estimated free cash flow of EUR 40 million to EUR 50 million enables Medios to repay the term loan and to finance further growth. At the end of the reporting period, the total loan amount drawn under the syn loan agreement amounts to EUR 167.5 million, EUR 112.5 million under the term facility and EUR 55 million under the RCF facility. Slide 13. Let me now address another important milestone that underscores our strategic shareholder-centric approach. We successfully completed our first public share buyback offer in June. The offer was very well received by the market, and I'm pleased to report that we acquired 1 million shares, which corresponds to approximately 3.92% of current share capital. The offer was made at a price of EUR 12.4 per share, reflecting a premium of approximately 9.3% over the 5-day XETRA average closing price, underlining our strong confidence in the long-term value of Medios. In total, more than 1,077,000 shares were tendered by our shareholders, which reflects an allocation quota of 92.78%. The buyback was conducted under the authorization granted by our shareholders at the 2023 Annual General Meeting, which remains valid until June 2028. The acquired shares could be used flexibly as permitted by the AGM resolution for purposes such as employee participation program, share-based compensation or strategic considerations in M&A transactions. Overall, we are confident about the business development over the next months and confirm our guidance for the full year '25 as shown on Slide 15. Our guidance parameters are revenue and EBITDA pre. For '25, we expect revenues to reach approximately EUR 2 billion, reflecting growth of around 6%. EBITDA pre is expected to grow by around 21.5% to around EUR 96 million. Organic growth should be in the mid-single-digit percentage range. Both parameters reflect an EBITDA pre margin of approximately 4.8%. The EBITDA pre guidance is adjusted for extraordinary expenses like M&A-related costs, expenses for stock option programs and implementation costs for an ERP system and as explained, as well as from '25 on one-off expenses due to the change in Executive Board. A summary of our strategic priorities is outlined on Slide 16. For this, I hand back to Matthias.

Thank you, Falk. The 3 pillars of our growth strategy are outlined on this slide. Our half year results show that we are making good progress in implementing our strategy, particularly in terms of margin improvement through focusing on higher-margin products and services and the internationalization of our business model. The organic EBITDA pre growth in our segment PS of EUR 3.5 million and PST of EUR 1.2 million, representing organic growth of 12.3% for the first half of '25 also shows that we are continuing to strengthen our business model in Germany. With Ceban, we have achieved internationalization. The first FX synergies are currently being implemented. We are also making good progress regarding our activities in the field of advanced therapies. We received the manufacturing license for gene therapeutics for customer-specific project at one of our sites near Stuttgart. There, we are building out our capabilities in small-scale formulation fill/finish for personalized cancer vaccines based on mRNA and/or peptides. We also have the special expertise required by law in the field of gene therapeutics among our employees. This development confirms that we are making progress in reaching our goal to the perfect partner for the biotech and pharmaceutical sectors in the future and keeping our promise, delivering the best therapies to patients. Regarding M&A, we have demonstrated that we have the necessary tools and strengths for further inorganic growth. We have a short list of interesting opportunities, namely bolt-on acquisitions. In a nutshell, we are on track to further implement our strategy and to ensure further attractive growth. Thank you for your attention. Falk and I are now available to answer your questions. Operator, could you please read out the instructions?