Earnings Call: Q2 2021

Aug 12, 2021

Good day, and welcome to the Medias AG Analysts and Investors Conference Call. Today's conference is being recorded. May I now hand you over to Claudia Nicholas, Head of Investor and Public Relations at Medias, who will lead you to this conference. Please go ahead, ma'am. Welcome everybody to our conference call on our results for the first half year of this year. 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 and CFO, Matthias Gertner. He will guide us through the presentation and will be available to answer your questions. I would now like to hand over to Matthias. Okay. Thank you, Claudia. Also warm welcome from my side. Thank you for attending this call and for your interest in Matyos. I'm proud to present excellent results to you today. The 6 months of 2021, we are far the best half year ever for Meteos. Not only is our M and A strategy paying off, We also have delivered very strong organic growth compared to all relevant comparative periods. And even more important, our margins are continuing to improve. I will start with a short summary of the achievements and highlights for the 1st 6 months of this year, followed by some comments on our financials and on our outlook for 2021. I will also be referring to the slides of the presentation. So let's go directly to Slide 3. How can the 1st month be best summarized? Again, record numbers. We can continue the growth and success story. We have set ambitious targets and even slightly raised our sales forecast for the year on August 2, based on the excellent performance in the second What are the reasons for the extremely good half year with profitable and sustainable growth? 1st, strong inorganic growth to a huge extent driven by the ongoing and successful integration of Kana Pharma. Strong organic growth. Also adjusted for M and A effects, we grew at a rate above 20% in the 1st 6 months of 2021 and almost 40% in the 2nd quarter 2021. Sales growth not at any price, sensible consideration in terms of necessary costs. Focused on higher margin product. This was impressively illustrated by our compounding business As you will see later on when I will give you the detailed figures. Addition of further specialized pharmacies to our network Of now 530 partners also gained through our innovative platform Meteos Connect as we could start An additional indication here. Ongoing improved working capital management, the good results as well as the cash inflow from the consolidation of Kana Pharma led to a superior positive free cash flow. Expansion of our market position in indications like hemophilia, successful further Creation of our acquisitions with gross selling already picking up. And finally, Further easing corona effects. Not only our figures have improved significantly, but also our governance. Following our AGM in June, our supervisory board now comprises 4 members and has implemented an audit committee as well as the Remuneration and Nomination Committee. We further advanced the establishment of the Meteos ESG strategy and look forward to presenting the details later this year. In a nutshell, we are showing dynamic and profitable growth and are excellently positioned for the future. The new authorized capital and our strong cash position ensure the financing of further potential acquisitions and organic growth. Our new labs in Berlin expected to be completed by year end, New partner pharmacies, cross selling opportunities and the digitalization of the health care system offer attractive growth potentials. Slide 4 illustrates the impressive continuous improvement of all our KPIs after the corona effect recorded Q2 2020. Also compared to the first half of last year And the Q1 of this year, all KPIs have increased. The same picture on Slide 5, Again, substantial growth year on year. Revenue more than doubled and EBITD pre even more than triplet. In a nutshell, both slides show the very impressive development since the beginning of 2020. Strong sales growth only clouded in the Q2 2020 with some corona effects. Significant expansion of our market leadership with the integration of Kana Pharma, a successful acquisition, increase in profitability with impressive margin improvement. So let's switch to Slide 6, providing a revenue and EBITDA pre breakdown 1st segment for the first half of this year. Pharmaceutical supply generated 95% of revenues and 80% of EBITDA pre. Our target is unchanged to grow the share of the higher margin segment patient specific Therapies in line with the strategy to focus on high margin, but usually lower revenue indications in this segment. I will now provide a short update on our ESG strategy and what has been done so far illustrated on Slide 7. Compared to our last update in May and as just said, We have made significant progress on the issue of governance as a result of Medyo's ordinary AGM in June. Doctor. Angel Nestler, a highly experienced financial expert is our new and 4th member of the Supervisory Board. A new audit committee as well as a new remuneration and remuneration committee was implemented. The members of the committees are shown on the next slide. The AGM approved of the further remuneration system for the executive and supervisory board. ESG targets are now integrated in our remuneration system for the Executive Board. The formation Of the advisory board that we were considering is more complex than anticipated, and A comprehensive legal review is currently underway. Therefore, we have not shown the advisory board here yet. Sustainability has and will be an integrated part in our corporate strategy, and we are working on its implementation within the comprehensive program. ESG is of top priority for us. Let's have a look at the financials and our outlook for 2021, starting with Slide 10. Covering the figures for the first half of this year. The full set of financial figures can be found in the half year financial report 21 on our website and in the appendix of this presentation as well. If not explicitly mentioned otherwise, I will refer to the first half year figures of 2021 compared to the same period of last year. Once again, these are the best half year results ever. Furthermore, our figures were affected by the pandemic only to a small extent. Major's KPIs doubled or even tripled due to organic and inorganic growth. Personnel and other expenses have risen mainly due to the current and expected strong growth, for example, by the launch of ePrescription from 2022 onwards and by the expansion of our compounding business, which I had already commented on. The rise in cost Was so disproportional compared to the sales development. Please keep in mind that the postpaid higher D and A mainly a result of the amortization of Karma's customer list amounting to EUR 5,000,000 for the 1st 6 months of this year. This is shown in the appendix. We have a phasing effect in the 2nd quarter compared to the Q1 of €500,000 due to the now final purchase price allocation of Kana Pharma included in depreciation of customer base. The future quarterly run rate for the depreciation of customer lists will be €2,700,000 adjusted for in EBITD Pre, thereof €2,500,000 regarding Kana Pharma. EBITDA pre and EBITDA pre were adjusted by extraordinary expenses for stock options, M and A transaction costs and for amortization of the customer list, mainly for Kana. The latter item is the reason for the higher increase in EBITDAB compared with the of EBITDA in the Q2 2021. The operating cash flow substantially improved to 29 €700,000 a consequence of higher earnings and an improved working capital. After the successful implementation of the new indication hemophilia, inventories have already been reduced significantly and the cash position has been raised accordingly. Financing cash flow amounts to only 1 point €3,000,000 compared to €70,000,000 last year, which included a capital increase as well as a temporary drawing of the syndicated loan. This year EUR 30,000,000 were drawn from the syndicated loan and thereof EUR 24,000,000 were paid to Mr. Hesse for prior shareholder loan to Carnar Pharma. Furthermore, the syndicated loan Was regularly reduced by €3,000,000 at the end of the reporting period. All these effects on cash flows led to a corresponding increase of cash and cash equivalents from just under €20,000,000 at the end of 2020 to around €75,000,000 as of June 30/21. For your information, we will from now on also report on free cash flow. In the first half year twenty twenty one, the free cash flow significantly increased from EUR 3,600,000 to now €54,000,000 because of the strong operating and investing cash flow, of which the letter included €30,000,000 cash inflow from Tranapharma as part of the acquisition. On Slides 11 and 12, we provide a detailed revenue breakdown for our organic and inorganic growth by segment. As you can see, the H1 revenues was driven by the almost 96% inorganic growth, mostly in our segment Pharmaceutical Supply, including Karma Pharma plus more than 21% Organic growth as well. The remarkable overall growth of 117% Compared to the relatively weak first half year of twenty twenty, which was impacted by corona. This growth was strongly supported by synergy effects stemming from the Kana Pharma acquisition, Such as benefits from a greatly enlarged network of specialized pharmacies and respective Cross selling opportunities. This clearly provides the excellent strategic fit of pharma and shows That the integration is successful and making great progress. In the Q2, organic growth amounted to almost 39% compared to the corona loaded comparable period of last year. As mentioned before, the slight organic sales decline of the compounding business in the 2nd quarter is Strategically driven by focusing on high margin, but usually lower revenue indications and consequently led to a significant increase in EBITDA pre and EBITD pre. The decline in sales at Koljeplista It's a result of focusing on profitable customers only. Nevertheless, we will see sales growth here in the future. This is for sure. Let's switch to slide 13, outlining revenues and earnings by segment. Here the main messages are, although the segment patient specific therapies posted only a flat sales development, EBITDA pre rose disproportionately, which proves that our strategy is working to focus on indications with higher margins. We have already achieved this in part, still higher margins are possible in this field. We posted lower cost of goods sold ratios for both operational segments along with margin improvements year on year, not only because of Kana's good cost of goods Structure and higher margin portfolio compared with makers. However, on group level, the cost of goods sold ratio increased, which is primarily the result of a weighting effect. The over proportional increase of the segment pharmaceutical supply due to the consolidation of Karma Pharma led to an increase in the average cost of goods sold ratio of the 2 segments. So let's switch to Slide 14, providing an overview of our currently available funds as of June 30, amounting to around €94,000,000 reflecting a syndicated loan for €45,900,000 with an original nominal value of €62,500,000 Signed in March 2020, the decrease results from contractual reduction of facilities. Liquidity of around €75,000,000 reflecting especially the strong first half with a substantially improved operating cash flow as well as a lower working capital. In line with our growth strategy, we will use these funds for organic growth and potential acquisitions as well. Around €10,000,000 we will be invested to build up additional debts in the already rented new building in Berlin, Of which we already spent €5,000,000 in the first half year. And we will pursue our M and A strategy Looking for attractive targets, mainly in the compounding business and or the area of digitalization. There are attractive targets on the market and we will take some of these opportunities. Our updated guidance for the fiscal year 21 is shown on Slide 16. On the 2nd August, we raised our revenue guidance based on the very good preliminary revenue for the first half of the year. We now expect consolidated revenue of EUR 1,200,000,000 up to EUR 1,300,000,000 versus previously EUR 1.15000000000 up to EUR 1,200,000,000 The earnings guidance, however, remains unchanged due to slightly higher costs for future growth. So we expect an EBITDA pre of €38,000,000 to €39,000,000 and an EBITDA of €31,000,000 to €32,000,000 Important to know, we could increase sales at an even faster rate, but that would be at the expense Stable sales but better margins. This guidance already considers following factors: ongoing But easing effects related to corona, additional expenses for future growth such as hiring new employees, For example, to be prepared for the expansion of our production capacities in Berlin. We are highly confident that all these investments will pay off in 2022 and the years beyond. Ladies and gentlemen, as you can see, the overall growth model of Methos is intact and showing excellent results. We are very well prepared to continue our successful and sustainable growth story. For this, we have a clear strategy. A summary of our growth initiatives, both organic and via M and A, Is outlined on Slide 17. Our growth strategy remains unchanged and its implementation will further advance. We are on track and well positioned to drive future growth, not only in 2021 by Expanding our compounding business. The new building in Berlin gives us the potential to triple our production capacities in the future. By exploiting the blistering business with high future potential and synergy effects focusing mainly on specialty pharma trucks by further expanding our partner network of specialized pharmacies and extending business with already existing specialized partner pharmacies. By taking on new business opportunities in relation to the electronic prescription as of January 22 by further market penetration through The innovative digital platform, Meteos Connect and by further expanding and diversifying the indication area. And second, as already mentioned, we will drive growth via M and A, in particular, in the fields of compounding business as well as potentially on digitalization. And this is only our short to mid term outlook, not yet reflecting the excellent mid- to long term growth opportunities, which could be Additional segments providing a higher margin potential. International expansion of our activities, We still benefit from the high market potential in Germany with the consolidating markets. However, we take into account The opportunity to internationalize our business. This is why the management of Matrix is Strongly convinced that we are rather at the beginning of our attractive growth story than at the end. Ladies and gentlemen, This completes our presentation. Before I answer your questions now, as a special service today, I would like to anticipate The following issues, which are certainly of general interest. Why did EBITDA pre grow more strongly than EBITDA pre in the first half of the year. EBITD pre was adjusted by extraordinary expenses for the amortization The customer base mainly for Kana. Furthermore, we had a phasing effect as already mentioned in the second quarter compared to the Q1 of €500,000 due to the now final purchase price allocation of Karma Pharma included in depreciation of customer relationships. This is the reason for the higher increase in earnings of EBIT pre compared with the rise of EBITDA pre current situation on corona related effects on our business. We do not know how long this quota system implemented in March 2020 will be in place. The Federal Institute For Drugs And Medical Devices declared the directive will remain in place until the end of the COVID pandemic, But the effects are quite limited now as we successfully learn how to cope with the situation and we expect to be back to normal in 2022. And lastly, why did you only raise the sales guidance not also the results. As just stated, we anticipate additional costs in preparation for future growth also in 2020 beyond. For example, hiring additional not yet budgeted employees. And more importantly, As already explained, we have to find the right balance between strong growth on the one hand and high margin on the other hand. As we do not want to grow at any price, we will continue to focus on Strong, but however profitable and sustainable growth. Thank you for your attention.