Ladies and gentlemen, welcome to DKSH analyst and investor call. I am Valentina, the call's operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Livia Baratta, Head Investor Relations. Please go ahead.
Good afternoon, everyone, and welcome to our conference call on the acquisition of NewBridge Pharmaceuticals. I am Livia Baratta, Head of Investor Relations at DKSH, and I am joined today by Stefan Butz, CEO, Ido Wallach, CFO, and Patrik Grande, Head of Business Unit Healthcare. Before we get started, please take a moment to review the disclaimer on slide two. Following management presentation, we will open up the line for Q&A, and we kindly ask you to limit yourselves to one question and one follow-up. We also remind you that this call is about the transaction and not a trading update. With that, I will hand over to Stefan.
Yes, thank you very much, Livia. Good morning, good afternoon, good evening, everyone. You reach us here in Zurich, Singapore, and Patrik and myself, we are in Hanoi in Vietnam. We are very proud to announce that DKSH has signed an agreement to acquire NewBridge Pharmaceuticals, a leading healthcare commercialization platform for specialty and rare disease medicines in the Middle East. This is actually a landmark acquisition for DKSH. It is fully aligned with our strategy and the ambitions we set at our capital markets day to accelerate more impactful M&A and expand with healthcare beyond Asia Pacific into structurally attractive markets, where especially our clients ask us to offer commercial outsourcing solutions for them as well on top of Asia Pacific. With discipline and focus on execution, we will continue to deliver on our promises.
NewBridge is actually the partner of choice for pharmaceutical companies in this structurally growing region with close to 350 million people for specialty and rare diseases with long-standing relationships across a broad partner base, and they have a very highly experienced multinational management team operating on the highest standards. This transaction will create three growth opportunities for DKSH on top. We can take NewBridge partners into Asia Pacific. We can bring our partners or clients into the Middle East, and we can win new partners with one offering across now 31 markets. This transaction is accretive to our group net results growth for EBIT margin and EPS from closing. Now I would like to hand over to Patrik, our Head of Healthcare, who will explain you more details. Thank you. Patrik, please.
Thank you, Stefan. Good afternoon, everyone. Let me take the opportunity to briefly introduce myself. My name is Patrik, and since January this year, I am the new head of healthcare. I have been with DKSH for four years, and prior to that, I have spent nearly 20 years at Novartis, working in different leadership roles both in Asia Pacific and Europe. First of all, let me share again our excitement about this agreement. It enables us to establish a healthcare platform in a region to serve 350 million patients. The MENA region is benefiting from structural market growth and an increasing wave of commercial outsourcing as more biopharma companies are rethinking their go-to-market strategies to commercialize their products. Established in 2010 and with a headquarters in Dubai, NewBridge Pharma is a leading platform in commercial outsourcing.
With more than 300 employees and operations in 14 markets, it has broad and long-standing relationships with 27 partners and commercializing 60 different brands. It establishes and offers an integrated end-to-end platform of commercial services. Next slide, please. With this acquisition, NewBridge directly strengthens our commercial outsourcing platform and offering to global partners in healthcare. With scale up, our reach to 31 markets across Asia Pacific, and MENA with a coordinated management at regional level and ensuring best-in-class local execution. We also gain complementary expertise in disease areas with high unmet medical needs like oncology, neuroscience, immunology, or rare disease, to name a few. To maximize growth in these disease areas, it requires capabilities such as medical affairs to build disease awareness and advocacy from key opinion leaders. The right market access to ensure the right pricing and reimbursement in a timely manner and launch excellence across the different markets.
In summary, combining our DKSH expertise in Asia Pacific with NewBridge MENA capabilities, we scale up into a broader platform that will enable us to unlock future growth opportunities. With that, I will pass over to Ido.
Thank you, Patrik. Good afternoon, everyone, and thank you for joining us on short notice. Our strategy, which is also captured in our promise, delivering growth in Asia and beyond, is particularly meaningful today. With NewBridge, beyond takes a front seat. The acquisition expands DKSH Healthcare into a new region, taking it from 17 markets- 31 markets, and strengthens our position in the higher value segment of commercial outsourcing, a key growth driver for the business. On the financials, NewBridge is expected to generate net sales of about $385 million in 2027, with a high single EBITDA margin. We will acquire 100% of the company for an enterprise value of $390 million. The acquisition is expected to be accretive to our net sales growth, our Core EBIT margin, and our earnings per share from closing.
We expect to complete the transaction by the end of the first quarter of 2027, subject to customary closing conditions, including regulatory approvals. The acquisition will be fully debt-funded. We maintain headroom and appetite for further M&A opportunities. Finally, our progressive dividend policy remains unchanged. With that, let me hand over back to Stefan.
Thank you very much, Ido, and let me briefly summarize again before we hand over the floor to Q&A. NewBridge is really an important step in delivering our Healthcare growth strategy, providing our valued clients more coverage, but also for attracting talent and providing our and NewBridge talent career opportunities, as well as delivering more impactful M&A. We will, as Ido said, keep headroom for further M&A, and we remain fully committed to our progressive dividend policy. Thank you very much, and herewith, I will open the floor for Q&A. Any questions, please let the operator know.
We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their telephone. You will hear a tone to confirm that you've entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Questioners on the phone are requested to disable the loudspeaker mode and eventually turn up the volume from the webcast while asking a question. Anyone who has a question may press star and one at this time. The first question comes from Gian Marco Werro, Zürcher Kantonalbank. Please go ahead.
Good afternoon, everyone. Gian Marco, Zürcher speaking. Two questions from my side, if I first may. On the growth outlook, you mentioned it's a pivotal step now, this acquisition. For the Healthcare segment, can you give us more details there about your growth expectations and also for the coming year? I can remember in the last discussions, we discussed something above 5% organic growth for this segment. Does this somehow change your view now on the growth potential of the Healthcare segment within DKSH? Then the second one, as you are guiding for EBIT and we have some indication so far out for EBITDA of the acquired company, can you just elaborate about depreciation amortization that this business usually brings with it? Thank you.
Okay, maybe, Ido, I answer the growth question and then you take the second part of the question. Thank you very much, Gian Marco, for your question. Yes, as we were indicating already in the announcement, the growth rate of NewBridge is ahead of the growth rate you have seen of Healthcare in the past years. This acquisition is going to be accretive on the growth rate, and you can expect that you see an accelerated growth rate in our Healthcare business. Ido, would you like to take the second part, please?
Yeah, with pleasure. Thank you, Gian Marco, for the question. We don't guide yet the difference between EBITDA and EBIT, because this will be done as part of the closing with the final closing financials, of course. But by and large, as I look at our previous acquisitions, we tend to have about 1/3 of the EBITDA going down into amortization depreciation. Of course, as a distribution and market expansion business in Middle East, like ourselves, it's a no CapEx business or very low CapEx business, and therefore we only expect amortizations of the intangibles.
Okay. But you mentioned only 1/3 of the EBITDA. Can you specify? Sorry, that was not so clear.
Yes, I confirm it. About 1/3 , but again, this will be finalized only at the closing. It can be below, it could be after, but that's a good rule of thumb for your analysis.
Okay. Thank you.
The next question comes from Andy Grobler from the BNP Paribas. Please go ahead.
Hi. Hello, everybody. Just a couple from me as well, if I may. Just firstly, just to follow up on the previous question and the split between depreciation and amortization of acquired intangibles, because many of us will look at this on an EBITA basis to be consistent with other companies. When you say 1/3 , is that taking the margin down from, my numbers, from 9%-6% ? Is that the right way to think about it? And how much of that 2%, 3%, whatever it may be, is going to be amortization intangibles? Otherwise, it's very difficult to put this into models. Secondly, on a related basis, can you just talk through some of the operational differences here that are driving margins that are so much higher than your core business?
Is it related to capital investment, or to own brand, or to other factors that are driving those margins that are so much higher? Thank you very much.
Okay.
Thank you very much, Andy. Ido, maybe you start, and then Patrik can give a little bit more insights onto the operational margin.
Sure. Again, with the caveat that the final intangibles will be only assessed at closing together with our auditors, evaluating various aspects as any brand power, length of contracts, et cetera. As I guided before, about 1/3 , and therefore from 9%- 6%, use the example that you used, will be a good indication at this stage. Of course, at later point in the future, we can guide further, and the numbers will be very visible for you in our reports.
Sorry, just to follow up.
Thank you, Ido. I think, yeah.
Yeah.
Can I just put pressure a bit on that? You are going from EBITDA to EBIT. Can you give us any guidance about what the depreciation number on that is? So not the amortization of acquired goodwill, but just the depreciation number within that. Is that half of that number, 1/3 of it? What sort of things should we look for, given your group average is about 1% depreciation?
Again, this is very early for us to give more guidance at this point. The total was just given. As I have also mentioned, this is a very low CapEx business, and therefore, the depreciation should be minimal. They also use very small level of rentals for IFRS 16, and therefore, the majority of this third will be in amortization and not depreciation.
Brilliant. Thank you. Patrik, sorry, I interrupted you. Sorry.
No worries. Thank you, Andy, for the question. Your question on the reason behind the higher margin. First of all, it is important to remind ourselves that NewBridge Pharma is a leading company in commercializing high-value specialty medicines and rare disease. Their business model is very similar to ours on commercialization. They operate with a light touch model in terms of distribution, meaning they outsource to local sub-distributors their operations, and they focus in regulatory access and commercialization services across these 14 markets.
Okay. Thank you.
As a reminder, if you wish to register for a question, please press star and one on your telephone. The next question comes from Jon Cox from Kepler Cheuvreux. Please go ahead.
Yeah, good afternoon, guys. A couple of questions if I can. Just in terms of the valuation, obviously if it was a 9% margin, it is over 11x EBITDA. If it is an 8% margin, it is closer to 13%. I do not know, typically when you are doing your M&A, it is maybe not quite as that multiple looks a bit higher than what you have normally done. As part of that, are you now really looking on a global basis at that healthcare business and looking for bolt-on deals as part of that in different parts of the world, and we should expect more of these type of announcements? If I can, I know it is not a trading update, but obviously a lot of people will start reporting quarterly.
When I look at GDP assumptions for some of your markets in Asia, looking at the currency, things actually look a bit better than they did maybe a few months ago, if you have any commentary on trading at the moment. Thank you.
Okay. Maybe, I take the question here, Jon. Thank you very much. We do not disclose the multiple, but I think what we did share is that NewBridge is delivering a high single-digit EBITDA margin, and that the multiple we paid is low double digit. I think that should give you some good guidance here. I think the amount being paid, the valuation reflects very well that this is a leading asset with higher growth and the margin around twice and even higher than the group margin. In terms of the trading update, no. Sorry, Jon, this is not a trading update we are giving here today. Please ask for your patience. Yeah. Sorry, I forgot the last part of the question here. Sorry.
Just on M&A, yeah.
We discussed that in the. Yeah, on the M&A. I think we discussed that in the past. Our clients, they are really asking us to offer them commercialized solutions outside of Asia Pacific. I think they are very pleased with our performance and our service levels in Southeast Asia. There are many more emerging markets, as they call them. The long tail of the smaller, young markets, they deliver their products to, no matter if it is the Middle East, if it is East Europe or if it is, for example, South America. We will keep our eyes and ears open and are going to scan high valuable opportunities in those markets as well. That was the reason of the statement that we still have some headroom for further M&A.
Emerging markets would be the focus in healthcare?
That is correct.
Right. Thank you.
You are welcome.
The next question comes from Héla Zarrouk from ODDO BHF. Please go ahead.
Yes. Good afternoon, sir. Do you hear me? Hello?
Yes.
Yes. Okay. Thank you. Perhaps you have already answered my questions, but I missed the first part of the call. I have three questions. The first one is, what will the pro forma net debt- on- EBITDA ratio be at closing and how quickly do you expect to deleverage? My second question is, how much financial headroom will remain for further acquisitions while maintaining the progressive dividend policy? My last question is, what integration costs and execution risk should we factor into our forecast, and which regulatory approvals remain outstanding? Thank you.
Okay. Hi, Héla. I think we can answer this question for the first time. For the pro forma EBITDA leverage, we expect by the time we close, which as I said, will be late in Q1 2027, and together with other acquisitions that we have already announced and completed this year, to be close to one time leverage at the time of the close. Also the next time that we will report to you with our financials together with NewBridge at June 30th. The financial headroom that remains, we have been quite vocal over the years that our appetite is for 2x-2.5x leverage, maybe more short-term, the 2.5x, and more long-term, the 2x.
Therefore we have a full round cycle of 1.5 of further headrooms for further acquisitions, which depending, of course, the price, will allow us to purchase further EBITDA opportunities. I think if I answer your questions on this area, then the final one was execution risk and what hurdles remain for the closing. We don't foresee particular execution risk. The business is performing extremely well. That's why we were interested in it to begin with. It is a relative simpler business than ours. It is very focused on the business that it does. It exports to the various markets rather than operating in subsidiaries. Like ourselves, it is already on one SAP platform, and therefore we expect very little execution risk. There's always some force majeure that can happen, but we don't foresee that at the moment. In terms of regulatory- Yeah.
Subject to the custom-- Oops.
Yeah.
Yeah.
Sorry.
Thank you, Ido. It's subject to the customary closing conditions, including some regulatory approvals, but we really don't expect any hurdles here to come, and do expect that the closing is going to happen at the end of Q1, if not even earlier.
Okay. Very clear. Thank you so much.
Did we answer all your questions?
Yeah. All my questions.
You are welcome.
Thank you so much.
Thank you.
Thank you.
We now have a follow-up question from Gian Marco Werro, Zürcher Kantonalbank. Please go ahead.
Thanks for the opportunity. Just two follow-ups from my side on the synergies. The first one is usually for your Healthcare segment, the big driver of the margin was in the past also more value-added services. Can you elaborate about the now new portfolio that you have in the new markets, the opportunity that you see there with more value-added services also for these clients? On the other side, also own healthcare brands was so far also a strongly growing business in your portfolio. Do you see there also some opportunities to bring your own healthcare brands into the new markets? Thank you.
Yes, we do. I would hand that question over to Patrik, please.
Thank you.
Thank you, Gian Marco.
Thank you, Gian Marco, for the question. The two questions. First, on the value-added services. When we look at the portfolio of NewBridge, it's very well diversified across different disease areas and different clients. It's also important to remind ourselves that it has a healthy mix in terms of new product launches and established medicines. We see opportunities to add value-added services to our offerings such as patient solutions, medical affairs, to accelerate some of these launches. With regards to own brands, you are absolutely right. That's also another growth opportunity that we are exploring actively. How can we really bring some of our own brands into some of these markets of the region? We also need to remind ourselves that some of these products, it will take some time before they go through the regulatory approval and they are commercialized.
Okay. Very clear. Thank you.
I hope we answered your questions.
Very clear. Thank you.
The next question comes from Chiara Di Giammaria from Berenberg. Please go ahead.
Good afternoon. Can you give us more color on the attractiveness on the market? So being based in the Middle East, obviously with what is going on in the region, do you see this market in terms of business sentiment as positive going forward? How do you see the opportunities here? Then if I may, a second question in terms of future M&A strategy, would you expect it to be more focused on the expansion on this new healthcare platform, or would you move more towards Performance Materials for sizable acquisitions? Thank you.
Thank you. Sorry, we missed your name. Can you repeat?
Chiara Di Giammaria, Berenberg.
Chiara. Thank you for the question, Chiara. Yes, we believe the MENA region is an attractive geography for healthcare for a variety of reasons. First of all, we see structural positive tailwinds in the pharmaceutical market in some of these countries with a rapidly aging population, increased funding policies for the local population, and healthcare reforms. We see that those are markets that will continue to grow at a steady pace. Second, when we look at outsourcing, we see that there is a continuous wave of outsourcing, both from large, mid-size pharmaceutical companies that are rethinking their model, and also some of the biotechs who are considering a partner to enter those markets. Third, when we look at the players in this region, NewBridge is a leading outsourcing platform with a proven track record and a strong reputation, with long tenure, relationships with different clients.
For all of these three reasons, we see this as an attractive opportunity. With regards to the time and potential impact of geopolitical instability, so far we have not seen in NewBridge this year their supply chain operations being impacted by those. It is also important to remember that some of the portfolio being commercialized by NewBridge is related to some diseases that have a significant impact in the local population and where they are reimbursed by the public system. Those systems will prioritize the funding for those populations.
In terms of future M&A, yes, we will continue to look for accretive M&A with a high strategic fit in Healthcare, but also in Performance Materials. As Ido was already indicating, even after closing this acquisition, we still have headroom of 1x-1.5x leverage, which is giving us enough headroom to do some material transaction in one or both of those business units. But again, promised, we will continue to stay disciplined in our way forward.
Thank you.
The last question comes from Michael Foeth from Vontobel. Please go ahead.
Yes. Hi, gentlemen. Thanks for taking my question. Just two left. You mentioned 100% debt financing. Do you already know what sort of expected financing conditions you will have on raising that debt? The second question would be if there's any chance you can quantify the synergies that you expect, either on the sales or on the operational side from this acquisition. Thank you.
Ido?
Yeah. Michael, I think I had a connection issue. I think you heard about the interest expense, your question was about?
Yes, exactly. The interest
Yeah
you would expect on the debt.
Yes. We have not yet finalized. The debt is secured. We have bridge financing with a major bank, and we will finalize the final instruments that we use, but it will range between. The business itself is exposed to U.S. dollars, so you know the SOFR right now is almost 4%. As a very low debt business, which will be by then, we will pay very attractive margins. So it will be, if it's in U.S. dollars, we're likely to pay about 5%. Our rate on the Swiss franc is more about 1.5%. So if we take combination of the two, we will be somewhere in the middle.
Okay, thanks. On the indications on expected synergies?
Yes. Thank you, Michael. With regards to your question, it is too early for us to quantify any potential synergies. I think what we can say is that some of these synergies, as Stefan was referring, they relate to existing contracts by clients or by the timelines in order for some of these medicines to be approved and reimbursed in some of these markets. At this stage, what is important to say is that we are really focusing on working on identifying and planning to capture some of these growth opportunities in the medium-term.
Okay, thanks a lot.
You are welcome. Thank you, Michael.
Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Stefan Butz for any closing remarks.
Okay. Thank you very much, everyone, for your interest. I hope that we could share with you our excitement and we really look forward to delivering on this unique opportunity here, together with the very experienced and motivated NewBridge team in the Middle East. Look forward to talking to you all again later at our full year results announcement. Thank you very much for your interest, and I wish you all a good day or a wonderful evening. Thank you.
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