Earnings Call: Q1 2021

May 11, 2021

Ladies and gentlemen, welcome to the conference call of Medias AG. At our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May I now hand over to Claudia Nikolaos, Head of Investor and Public Relations at Medias. Welcome everybody to our conference Call on our results for the 1st 3 months 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 Gerna. 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. And also a warm welcome from my side. Thank you for attending this call. And also thank you for your interest in Meteos. I'm very happy to tell you that we had a very good start in the year with a record quarter in Matrix' history following an already very successful Q4 2020. I will start with the highlights for the 1st month 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 So let's start with the highlights of our operations and financials outlined on slide 3. Given the record quarter, it is needless to mention that our growth strategy is on track. Both segments reported sales and earnings growth with improved margins. We realized first synergy effects for both of our latest acquisitions, mainly in purchasing and logistics. Also, we are starting to exploit the cross selling potential within our extended partner network of now more than 500 specialized pharmacies. The acquisition of Kana Pharma is already paying off as demonstrated by the positive development of our financials. Furthermore, we expanded our product portfolio, whereof the indication hemophilia is the most important. Meanwhile, we became a leader in this attractive market of around 5,000 patients in Germany. At the beginning of the year, we started setting up our new labs in the new building within the complex where our wholesale business is already located. With this, We will be able to up to triple our production capacity in the midterm and realize further synergies by concentrating logistics and warehousing at one site. We should be able to start production in the 4th quarter of this year. We advanced the digitalization internally and to support our partner network by further developing the innovative Meetup Connect online platform, a crucial element in our growth strategy. This platform connects doctors, health insurance companies and specialized partner pharmacies with each other and serves as an ordering, billing and settlement portal. The number of users as well as the number of ordering and billing processes carried out on Matrix Connect is constantly increasing, already more than 12,000 transactions per month. This is partly due to the introduction of subscription capable platform that offers added value for doctors, health insurance companies, specialized partner pharmacies and patient. This allows the aforementioned stakeholders and methods to benefit from the increasing digitalization in the healthcare system. The message is unchanged. We are well prepared for the mandatory start of the e prescription in January 2020 in Germany. No surprise that the focus of our M and A is on the compounding business and digitalization. Our growth plans are safeguarded by our strong financial background. I also want to point out that in Q1, We improved our cash conversion and achieved a strong operating cash flow, also a new record number for Meteos. I'll give you more details about that later on. So let's switch to slide 4, an overview on the financials. And as I said, Q1 was a record quarter. Overall, our financial position remains strong. We handled the challenges caused by the COVID-nineteen pandemic very well and are seeing already the effects of the Carnar acquisition. Our KPIs doubled or almost doubled. Revenues increased 94%, EBITDA pre-107% and EBITD pre-ninety 1 percent, driven by inorganic growth of our wholesale business, including especially Craner Pharma, but also kercherblister and hemophilia for all 3 months. Both segments, Pharmaceutical Supply and Patient Specific Therapies, contributed to revenue and earnings. Financial were persistently negatively affected by COVID-nineteen, but on a significant lower level. We have adapted to the situation and are coping well. I can only repeat what I stressed during our last calls. We do not know how long this quota system will be in place. The Federal Institute declared, as long as the COVID pandemic persists, The quota will remain. Slide 5 provides a revenue and EBITDA pre breakdown per segment. Pharmaceutical supply generated 95% of revenues and 76% of EBITDA pre. Our target is still to grow the share of the higher margin segment patient specific therapies, the compounding activities. I will now provide a short update on our ESG strategy and what has been done so far, illustrated on Slide 6. We describe the work we are doing in connection with on Environmental, Social and Governance, ESG, in a dedicated voluntary report. This non financial consolidated statement is included in our annual report and posted on our website. Furthermore, we joined the world's largest responsible corporate governance initiative, the United Nations at Global Compact in March. Therewith, we have committed to its 10 universal principles in the areas of human rights, labor, the environment and anti corruption. But we still have a lot ahead of us. Sustainability will be an integrated part in our corporate strategy. So we have already started to develop with a comprehensive ESG strategy for Meteos. In addition, we will shortly implement ESG targets in our remuneration system for the Executive Board that will be presented at our forthcoming AGM on the 10th June. A further resolution at the AGM We'll also be on the extension of our supervisory board from 3 to 4 members and then to implement new committees, an audit committee as well as a nomination and remuneration committee. These measures will further improve the governance at Matyos. During the last month, we received first G ratings from some institutions as well as from investors representing good or at least average scores. We will be able to advance on ESG issues and thus also improve our ratings in the future. This is a clear aim. Our conclusion, ESG is of top priority for us. We will keep you posted about Matyos DSG Development. I will now comment on the financials and on our outlook for 2021, starting with slide 8, covering the figures for the 1st 3 months of this year. A full set of financial figures can be found in the quarterly statement 21 on our website and in the appendix of this presentation as well. If not explicitly mentioned otherwise, I will refer to the Q1 figures on 'twenty one compared to Q1 'twenty. Once again, Q1 of 'twenty one is the best quarter we've ever had, driven by the integration of Kana Pharma since the beginning of this year. Furthermore, our figures were less affected by the pandemic than in the previous quarters. Medios KPIs doubled or nearly doubled due to organic and inorganic growth. It is worth to mention that personnel and other expenses have only risen disproportionately due to the lean structure of Kana Pharma. In addition to the new employees from Kolscheplister and Kana Pharma, New colleagues came on board to prepare for future growth, for example, to be ready for the mandatory e prescriptions from January 'twenty two onwards. Not to mention the expansion of our compounding business, which I had already commented on. So the number of employees has grown from 191 in the Q1 'twenty to now 307. Of the new employees, around 80 came from the acquisition. Please keep in mind That the posted higher D and A are mainly a result of the amortization of Kvaerner's customer list for the first time shown in the appendix, amounting to €2,100,000 for the Q1, of which €1,980,000 are dedicated to Kana and will be eventually amortized over a period of 8 here in the course of the initial consolidation we have examined in detail and gained more insight. EBITDA pre were adjusted by extraordinary expenses for stock options M and A and for amortization of the customer base, mainly for Kraner. A respective breakdown and is outlined in the quarterly statement as well. The operating cash flow substantially improved by €31,800,000 up to €21,400,000 a consequence of higher earnings and an improved working capital. Inventories have already been reduced significantly and the cash position has been raised accordingly. Financial cash flow increased to €5,600,000 representing the positive balance from the further utilization of the credit line and the settlement of financial liabilities to the former owner of Kranas Pharma. The rise of cash flow from investment activities from minus €2,000,000 to more than €27,000,000 is a result of cash inflows from the Grana acquisition. More details can be found in the appendix of this presentation. These effects on cash flows led to a corresponding increase of cash and cash equivalents from just under €20,000,000 at year end 2020 to around €74,000,000 as of March 31, 2021. On slide 9, we provide a revenue breakdown of organic and inorganic growth by segment. The message is clear. 1st quarter revenue is driven by the almost 87% external growth of our segment with supply, including Ghana Pharma, of the overall growth of 94% compared to the very strong Q1 of 2020. This growth is strongly supported by synergy effects being mainly realized by Klarna Pharma such as benefits from a greatly enlarged network of specialized pharmacies and respective cross selling opportunities, a proof of a successful acquisition and integration. Let's switch to slide 10, outlining revenue and earnings by segment. As just said, Revenue growth was driven by Pharmaceutical Supply reporting more than doubled revenues of around €300,000,000 And again, earnings of the segment were less impacted by higher procurement prices as seen during in previous quarters. We posted lower cost of goods sold ratios for both operational segments along with margin improvement year on year as a result of Kvaerner's good cost structure and higher margin Let's switch to slide 11, providing an overview of our currently available funds as at March 31, which amount to around €105,000,000 reflecting a contract signed for a syndicated loan in March 2020 with the amount of €62,500,000 thereof, we used €31,500,000 so far in relation to the acquisition of Cranmer from our liquidity of around €74,000,000 representing a strong first quarter with potentially improved operating cash flow as well as the lower working capital following the successful launch of the new indication hemophilia. In line with our growth strategy, we will use these funds for organic growth and potential acquisitions as well. Up to €10,000,000 will be invested to build up additional laboratories in the already rented new building in Berlin. And we will pursue our M and A strategy looking for attractive targets, mainly in the compounding business and or the area of digitalization. We confirm our forecast provided at the end of March, as shown on Slides 1314. In the 2021 financial year, we expect to exceed the €1,000,000,000 mark, a new record and generate revenues of approximately €1,150,000,000 to €1,200,000,000 This is plus 84% to 92% compared to 2020. And an EBITDA pre of €38,000,000 to €39,000,000 a plus of 152% to 159% compared to 2020 and an EBT period of €31,000,000 to €32,000,000 which corresponds to a plus of 158 to 166% compared to 2020. Percentage wise, earnings are expected to increase disproportionately. So the EBIT margin will improve significantly to 2.7% in 'twenty one after 1.9% in 2020. And this guidance already includes Ongoing uncertainty due to the corona situation, extraordinary expenses because of the mandatory implementation of the e prescription as of January 22, as well as significant investments into the expansion of our production capacities in Berlin. We are very confident that all these investments will pay off in 'twenty to and the years beyond. Ladies and gentlemen, as you can see, the overall growth model of Matyos is intact. We will continue where we left off at the end of 2020 and build on the successful business performance of the Q1 'twenty one. We are very well prepared to continue our successful and sustainable growth story. We are convinced of the mid- and long term growth potential also driven by the 2 acquisitions and this, of course, at higher margin in an exceptional year 2020. As stressed before, our growth strategy remains unchanged and its implementation will further advance. I have explained why we are well positioned to drive future growth, not only for 2021. Now a brief summary of our growth initiatives outlined on slide 15. The conclusion is unchanged for us. The growth story of Meteos continues. First, we will drive organic growth by expanding our compounding business. The new building gives us the potential to triple our production capacities in the future by exploiting the blistering business with high future potential and synergy effects, by 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 e prescription as of January 'twenty two by further market penetration through the innovative digital platform, Mediatek Connect, and by further expanding and diversifying the indication areas. And second, we will drive growth via M and A, focusing on the compounding business as well as potentially on digitalization. Ladies and gentlemen, this completes our presentation. Thank you very much for your attention. Okay. Thank you very much for joining us for this conference call. We look forward to speaking to you at upcoming investor conferences, and you will hear from us at our next conference call. If there are any follow-up questions, please just drop an e mail or give us a call. We wish you a pleasant and nice afternoon, and goodbye. Bye bye. Thank you.