Medios AG

Ladies and gentlemen, welcome to the conference call of Medios 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 your questions. If any participant has difficulties hearing the conference, please press 0 followed by the rhombus key for operator assistance. May I now hand you over to Matthias Gärtner? Chief Executive Officer of Medios CISOF.

Okay, thank you very much. And also from my side, ladies and gentlemen, welcome to our conference call on the results for the third quarter of 2023. As in the past, 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. I will start with a summary of the Q1 business development. My colleague Karl Neukes will then go through the financial details and the guidance for 2023. At the end, I will comment on major growth strategies. Afterwards, the both of us will be available to answer your questions. We will be a bit freer than usual today, since we talked just six weeks ago in the context of the 2022 full-year results. All in all, we had a successful start in 2023 and were able to successfully cope well with the ongoing challenges, especially regulation issues. Let's go directly to slide 3, providing an overview of the highlights for the first quarter 2023. First, we further strengthened our patient-specific therapy segment through the sterile manufacturing collaboration with Apotheken für Spatialversorgung OIT, a part of the acquisition of DBW as of January 23. We have started the integration process and are supported by our experienced internal post-murker integration team, as was the case in previous acquisitions. This is an important building block to realize good synergies and cross-selling effects also based on around 15 new partner pharmacies. Second, we hosted good first quarter financials, record revenue of €431 million, and the second best quarterly EBITDA-3 of €15 million, with a group margin of 3.5%. This development is based on sustainable growth of both business segments. and for the first time the consolidations of DDW. It must be mentioned that first quarter results are additionally impacted by the strategically driven inventory build-up and by regulatory issues. Intentionally operating cash flows were negative in Q1. I will provide you with some more insights on the financials later. The implementation of our extended growth strategy 25 is progressing. Meanwhile, our head of international business development, Konstantin von Riebschoten, has started his work to drive forward internationalization as part of the extended strategy. I will come back to this later in more detail. As stated in our last call, we have started to offer highly specialized parental nutrition care for prematurely born babies, another building block to extend our services. With this, we prevent an impending supply bottleneck, diversify our customer group, and strengthen our position as a reliable partner in the specialty pharma sector. The implementation of our ESG strategy is progressing well. Based on the data of 2022, we are now able to sharpen our climate and environmental targets, in particular in the course of the year. In a nutshell, in the first quarter we set the course for 2023 as planned. This includes in particular to strategically build inventories in Expectation of higher prices later in the year continue to successfully integrate Nucleopharma and PPW and intensify work on our internationalization strategy. Consequently, we expect ongoing growth in 2023 and confirm our full-year guidance. Taking into account the change reimbursement scheme in our PST segment since September 2022, and the general economic uncertainties. Now let me share a short summary on the Q1 financials as illustrated on slide four to six. Slide four shows the strong quarter on quarter growth of our two KPIs, revenue and EBITDA. We achieved consistent growth except for Q4 22, reflecting the negative impact of the regulatory changes which became effective on September 1, 2022. This effect is also illustrated on slide 5, with a 10% increase in revenue compared to a 6% EBTA-free growth, leading to a slightly lower margin compared to last year. Slide 6 shows that we stick to our strategy of focusing more on the higher-margin patient-specific therapy segment. to sustainably increase the margin of this entire major group. So far, we have been able to successfully implement this strategy and increase the EBDA contribution of the GSD segment up to 44%. Now let's move to slide 7, which you probably already know very well. It describes our strong network of meanwhile around 720 specialized partner pharmacies. an excellent basis for our further German expansion. Based on our increased capacity and the agreement of manufacturing for AFS that we mentioned before, we target to significantly extend our manufacturing and compound up to more than 400,000 individualized preparations in 2023. On slide 8, please find an update on our ESG activities. As mentioned in March, we have been able to expand the depth and breadth of our ESG database thanks to our new IT-based ESG software. So we will define 22 as our baseline year regarding our future ESG performance. Until the end of 23, we intend to update our ESG strategy by defining concrete targets for our environmental impact. Furthermore, Matrix has now by the most relevant international ESG rating agencies with steady improvements. This is all from my side for the moment. I now hand over to Falk to provide more details on the Q1 financials and on the guidance for 2023.

Thank you Matthias. Also welcome from my side. I will give you a detailed overview of the financials for the first quarter 2023 now. The co-step of financials can be found in the quarterly statement on our website. Let's start this slide. As Matthias already said, we had a successful start in 2013. 2.1 revenues increased by 9.7% to 431 million euros due to the continued growth in both operational segments as well as the continuation of our latest acquisition, DDW, in January 2013. Gross profit increased to €27.9 million, with a slightly lower gross profit margin of 6.5% compared to 6.7% for Q1 2022, which is mainly due to the regulatory price reductions that have been effective since September 2022 for some types of static blocks. Personnel costs follow the development of head funds. The increase of personnel costs by €0.78 million to €9.5 The increase of other operating expenses by €0.9 million to €5.6 million was mainly driven by the integration of BBW groups. Further cost increases resulted from enlarged rented space as well as higher energy prices and IT costs. 2 by 5.8% with an EBITDA free margin of 3.5%, almost flat to the comparable margin of 3.6% in the previous year, but higher than in 2.4, 22 with 2.8%. This development is also reflected in the development of earnings per share, and it shows the stability of our business model and simultaneously our ability to conquer challenges like the regulatory price adjustment end of 2022. For your background, the adjusted EBTA, so-called EBTA3, was adjusted by extraordinary expenses in the amount of 1.7 million euros. There are for stock options 0.4 million euros, 0.2 million euros for M&A costs and 1.1 million euros for performance-based payments for the acquisition of manufacturing volumes. Depreciation and amortization slightly decreased from 5.4 million to 5.3 million euros. This includes already effects of the last acquisition in the amount of 0.2 million euros. The negative operating cash flow of minus 250.3 million euros resulted in particular from the strategic build-up of inventories in preparation for expected upward price adjustments. in the pharmaceutical supply business in the second half of 2023. In addition, sales prison increased in receivables and performance-related payments for the takeover of manufacturing volumes in the amount of 5.7 million further lowered operating cash flows in the reporting period. As already explained, we intend to sell all the higher inventories currently being built up in the second half of the year with a corresponding positive impact on operating cash flow. Cash flow from investing activities of minus €17.2 million resulted mainly from the net cash component of the purchase price of CDW acquisition of €19.4 million minus €3.4 million acquired cash. The financing cash flow of €204.1 million resulted primarily from the drawing of €25 million under revolving loans to finance the last acquisition. Due to the effects described above, cash and cash equivalents amounted to €60.7 million at the end of the reporting period, down from €79 million at the beginning of last. The equity ratio decreased from 77.8% by end of 2022 to 73.2%. Let's now switch to slide 11. Both operating segments contributed to the sales increase of 10%. In the pharmaceutical supply segment, external revenue increased by 8.5% to 368.1 million euros. €11.66 million of which was attributed to DBW. External revenue generated by patient-specific therapies increased by 17.4% to €62.9 million. DBWs for pharmaceutical supply segments increased to €10.1 million, which corresponds to an increase of 21.2%. EBITDA-3 for patient-specific therapy segment lost €6.6 million, slightly below €1.22 million. The decline in margin is mainly due to the regulatory entrance. So overall, the margin in PS, pharmaceutical supply, was up 0.3 percentage points to 2.8%, whereas the PSD margin decreased from 12.9% to 10.4%. On group level, the EBITDA fee margin of 3.5% is almost stable compared to 3.6% for Q1 2022. Class 12 provides an overview of our current financing power, or our growth plan. In sum, we have more than 100 million euro of free funds available, resulting from available cash and our revolving credit system. I would like to emphasize that Nidio's net leverage ratio provides further headroom for debt financing by taking advantage of the step-up option of the existing SIM bond by another €50 million debt and even further loan arrangements. On top of that, we will ask our shareholders to vote for a 10% authorized capital increase at our fourth coming ATM in June, which will further strengthen our financing power for future stocks. Let's now switch to slides 14 and 15. We confirm our guidance for 2023 as presented on the 22nd February with our preliminary results and confirmed in March during our full year reporting. Despite ongoing economic and regulatory uncertainties, we expect revenue to reach the range of 1.6 to 1.8 billion euro. EBITDA-3 is expected to rise The guidance takes into consideration assumptions as outlined on slide 50. The impact from last year's regulator of price changes is considered in this guidance. Global uncertainties do still exist, such as rising inflation and supply chain bottlenecks. However, the key message remains again the same. Our growth course will continue. A summary of our strategic priorities is outlined on slide 16. For this, I hand over to Matthias.

Okay, thank you, Paul. Now some words to our extended growth strategy 25, first presented in November last year and at our full-year earnings call end of March this year. I will therefore be griever today and focus on the update. Slide 16 shows the three pillars of our strategy, which remain unchanged. In addition to strengthening our core business in Germany, we intend to expand drug manufacturing operations into other European countries. And we plan to further diversify our business models by entering into the production of personalized medicine. In Germany, we still want to close the wide spot in our geographic coverage by 2030. acquiring respective labs and or conclude cooperation agreements, as well as by rolling out Makeos Connect, our innovative digital platform for the PST business. Also by increasing the number of doctors and surgeries behind our partner pharmacies and we will further diversify and expand our indication area. The most recent example is that we started to provide parental nutrition for premature-born babies nationwide. So we prevent an impending supply bottleneck and strengthen our position as a reliable partner in the specialty pharma sector. As this involves inpatient care, we work as a manufacturing partner for hospital pharmacies. And in this way, we diversify our customer groups. We already received the necessary special approval from the relevant pharmaceutical authorities at two manufacturing sites so that the highest level of supply security can be guaranteed. We made progress with the implementation of our internationalization strategy to expand compounding within Europe to gain continued growth while increasing profitability. We pursue two approaches in the implementation, developing mutually benefiting partnerships in Europe and value-enhancing acquisitions. What could be, among others, achieved by realization of synergies, processing and leveraging platforms. Konstantin von Eichhörn, our new Head of International Business Development, started in April. Together with our experienced M&A department, We have an excellent market knowledge and extensive network in the European specialty pharma market now. So the long list of potential targets was intensively analyzed, screened and discussed, resulting already in a shortage of potential acquisition candidates. Talks are initiated with around 10 pharmaceutical companies in Europe about a partnership or potential acquisition. We are very confident about the current development and will inform the market immediately when the first transaction materializes. By internationalizing our business, we can further strengthen our market position and, at the same time, diversify our customer group to become more independent of German healthcare regulations. Now some information on the third and last pillar of our extended growth strategy. Entering the groundbreaking personalized medicine market, summarized under the term advanced therapies, meaning medicines based on genes, tissues, hotels, all expensive and complex therapies. This fits well as we are already a trusted partner for high-value drugs in Germany. In addition, there are already widespread capacity shortages in the manufacture of novel therapies, and market experts expect capacity to lack demand in the future. As outlined by FALSE, we have a strong financial basis that enables the financing of our extended growth strategy. Before I conclude the presentation, let's switch to slide 17. At our capital markets day, we presented our group mid-term targets 25 to 27 for the first time. One of our main goals is to further increase our EBTA free margin. That's why we want to tap further opportunities, which will enable us to achieve our objectives by internationalizing our business and by potentially launching new segments with new services, all within the field of specialty pharma. By implementing our extended strategy 25, We aim to achieve a medium-term target of 2 billion euros in revenues and an EBITDA free margin in the mid-single digit area. Ladies and gentlemen, this concludes our presentation. We hope to see you in person at a conference soon or to hear you at our next earnings call on August 14. Thank you for your attention. Charles and I are now available to answer your questions. Operator, could you please read out the instructions?