Medios AG

Hello, ladies and gentlemen, and welcome to the conference call of Meteos AT. 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. If any participant has difficulties hearing the conference, please press zero followed by the hash key for operator assistance. May I now hand over to Claudia Nikolaos, Head of Investor and Public Relations and ESG Communications at Medios.

Good morning, everybody, and welcome to our conference call on our results for the first half of 2023. 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, Matthias Gärtner, and our CFO, Falk Neusers. Matthias will start with an expected summary, followed by Falk, who will then provide details on the financials for the first half of 2023, as well as on the outlook for the current fiscal year, and finally Matthias will comment on New York's growth goals. Both gentlemen will be then available to answer your questions. I would now like to hand over to Matthias.

Okay, thank you, Claudia, and good morning from my side as well. Ladies and gentlemen, welcome to the conference call on the results for the first half of 2023. The first half of the year was again successful for majors against the background of the ongoing challenges. We managed to achieve fast and strong recovery in the first half of the year after week 4, quarter 22 due to regulatory changes since September 22. More important, we have laid the foundation for a strong third quarter. I can say today that the expected strong business development was already visible in July. So we expect a very strong third quarter driven by by the strategic build-up of inventories in the first month of this year. Accordingly, we are fully on track to achieve our targets and clearly confirm our guidance for 2023 with revenues up to 1.8 billion euros and an EBITDA-free up to 63 billion euros. We continue to implement our growth strategy as planned and are well positioned for a strong second half of 2023. Here, also the expected price increases in the pharma market will have a positive impact on our financials. Let's directly go to slide 3, providing an overview of the highlights for the first half of 2023. First, we further strengthened our patient-specific therapy segment. Through the sterile manufacturing collaboration with AFS as part of the acquisition of DPW, Vista Zentrum Baden-Württemberg, as of January 26. Following the strategic tail of Culture Vista in June, we have centralized all Vista activities in DPW's last-year structure. This is an important step to realize efficiency gains in Vista over the next year. Second, we posted good past year financials. especially when taking into account regulatory headwinds since September 2022. Revenue reached around 854 million euros and EBITDA fees amounted to 29 million euros with a group margin of 3.4%. This development is based on sustainable growth of both business segments and the acquisition of BBW included for six months. Third half-year results are impacted by the strategically driven inventory build-up. Consequently, operating cash flows were correspondingly negative. I will provide some more insights on the financials later. And third, the implementation of our Extended Growth Strategy 2025 is making very good progress, especially with regards to the internationalization of our business. We have identified several targets across Europe and are in ongoing talks with some attractive potential targets. As briefly stated in our last call, we now also offer highly specialized parenteral nutrition care for prematurely born babies and service-driven and impending supply bottlenecks. We benefit from the diversification of our customer group and strengthen our position as a reliable partner in the specialty pharma sector. Furthermore, we are already adapting our ESG reporting to the new European rules and regulations, for meteors still on a voluntary basis this year. In a nutshell, in the first quarter, we set the course for 2023, and in the second quarter, we continued this path as planned, despite some headwinds. We built up inventories in expectation of higher prices later in the year, continued to successfully integrate new co-farmer and BPW, and intensified work on our internationalization strategy. As said, we expect a very strong third quarter. On slide 4, we summarize the most recent sale of Hershey Blister, which was a strategic decision, and please be aware, this transaction had no material impact on our financials. Now let me share a short summary of the financials for H1 as illustrated on slides 5 to 7. Slide 5 shows the quarter-on-quarter development of our two KPIs, Revenue and EBITDA3. Due to recorded revenue growth and a slight decline in EBITDA3, compared to the prior year period due to regulatory price adjustments impacting our PST business since September 2022. Consequently, the EBITDA green margin for the second quarter of 3.3% was slightly below last year's level, but we expect margins to recover in the third quarter this year. Revenue in the first half increased by around 8% to a new record of 854 million euros, and EBITDA 3 also amounted to a new record level of 29 million euros, as shown on slide 6. Most of our growth was attributable to organic growth, but we will provide the details later. Slide 7 shows that we speak to our strategy of focusing more on the higher margins, patient-specific therapy segments to sustainably increase the margin of the entire matrix group over the next years. Year-on-year, the EBTA3 contributions of the PUP segments remain stable, 43%, and is above our target share of 40%, as shown on slide 7. Now let's move to slide 8, which you probably already know very well. Our network of specialized pharmacies has grown further and now includes 750 partner pharmacies. We are clearly the number one outsourcing partner for specialty pharma. This is 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 expand our compounding up to more than 400,000 individualized preparations in 2023, depending on indication area. On slide 9, please find an update on our ESG XCDC. We intend to voluntarily accept a non-financial consolidated statement to the new international standards and requirements already for the current financial year, in particular to the rules of the Corporate Sustainability Reporting Directive, abbreviated CSRT. A further review of METO's S&P and GAIA ratings was carried out in the first half of the year, leading to a rating improvement in both cases. We are also proud of the award of Best M&A Direction for the successful acquisition and integration of the Nucro Pharma Group. This was only possible thanks to the efficient organization and cooperation of all working groups on both parties. Teamwork at its best. In July, we were also honored with the Germany's Best Shop with the Future 23 award. This recognition is based on a analysis conducted by the Institute for Management and Economic Research, IMWF, and Deutschland Test. They award companies that are both sustainable and economically successful and offer their employees a pleasant working environment. We are also very proud to be part of a peer group, including very renowned companies like Roche, Bayer, or Sandoz, and even outperform some of them. 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 23 and on the guidance for 23.

Thank you, Matthias. Also welcome from my side. So we now give you an overview on the financials for the first half of 23. The full financial data can be found on our website. Let's start with slide 11. As Matthias already said, we had a successful growth path in 2023. Revenues increased by 7.7% to $854 million. A new half-year record due to continued organic growth in both operational segments as well as inorganic growth by the acquisition of EDW in January 2023. Growth profit increased by 1.8% to 54.4 million euros is a slightly lower gross profit margin of 6.4% compared to 6.7% in the previous year. This is mainly due to the regulatory price deduction in September 2020. The increase of personnel costs by 8.9% to 17.8 million euros results from organic growth in both operational segments. The exposition of CPW, continuous build-up of central functions and schedules, tailoring increases. The increase of other operating expenses by 3.7% to 10.7 million was mainly driven by higher IT costs, especially for software life. EBITDA pre grew by 1.9%, resulting in an EBITDA pre-margin of 3.4%, which is slightly below the margin in the previous year with 3.6%. As already mentioned, this is mainly caused by regulatory price adjustments in September 2022. The EBITDA pre was adjusted by extraordinary expenses in the amount of 3.1 million euro sales for stock options 0.7 million, 0.1 million for M&A transaction costs and 2.2 million for performance-based payments for the acquisition of compounding volumes. Depreciation and amortization slightly decreased from 10.7 million euros to 10.6 million. This includes already depreciation and amortization effects of related acquisition in the amount 0.4 million euros. Drawings under the RTF to finance the DDW acquisition and working capital needs in an environment of rising interest rates triggered and increased in financing costs by 0.4 million euros to 1 million euros. By end of June 23, an amount of 45 million euros were drawn under the RTF, which is expected to be redeemed during Q3 2023. The decreased earnings per share are a result of the already described regulatory price impacts that haunt performance-based payments for the acquisition of compounding volumes and rising financing costs in the reporting period. The negative operating cash flow of minus 75.2 million euros is a result of the build-up of inventory in preparation for expected upward price adjustments in the pharmaceutical supply business. The development is also attributable to the sales-serving increase in receivables and performance-related payments for the takeover of compounding volumes in the amount of €5.7 million related to the DBW acquisition. The inventories will be received significantly by a scheduled sell-off mainly in 2023 with a corresponding positive impact on operating cash flow and margin. As stressed by Matthias, we expect a very strong third quarter, already visible in July's results. Investing cash flow of minus €16.4 million resulted primarily from the cash components for the DBW acquisition of €19.2 million. Financing cash flow of €42.6 million resulted from the net drawings under the revolving traffic facility of 75 million euros, the strong funds were used to finance the acquisition, the inventory build-up in the left segment, as well as the payments for the takeover of compounding volumes. Mainly because of the inventory build-up, cash and cash equivalents decreased from 79 million euros at the beginning of the year to 30.3 million euros at the end of the reporting period. The equity ratio decreased from 77.8 by end of 2022 to 72.9 as a result of the loan growth. On slides 1 and 13, we provide a breakdown of the organic and inorganic growth by spectrum for the first half of 2023. Revenue grew organically by €33.2 million or plus 4.2%. Inorganic revenue growth amounted to 28 million euros plus 3.5% written by the expectation. Around 82% of the inorganic revenue growth were allocated for our PS segment and the remainder to PSP segment. Organic growth of 33.2 million euros occurred almost entirely in the PS segment. The last 13 shows the organic and inorganic data. EBITDA3 breakdown by segment for the first six months of 2023. EBITDA3 increased inorganically by €1.5 million as a result of the BDV's integration, where €1 million were allocated for our TS segment and the remainder for PST. The increased IT and personnel costs for the central functions are reflected in this expense service. Let's now switch to type 14. Both operating segments contributed to a sales increase of around 8%. In the pharmaceutical supply segment, external revenue increased by 7.6% to 734.1 million euros, of which 23.1 million euros were attributes usable to TVW. External revenue generated by patient-specific therapies increased by 8.6%, to 118.9 million euros. EBITDA-free for the TF segment increased to 19.9 million, which corresponds to an increase of 13.9%. EBITDA-free for the TSC segment declined to 12.5 million, minus 5.5% below the previous year. This decline in margin is mainly due to the already described price changes in this segment. Overall, the margin in relation to external revenue in GS or CUP, 0.1% to 2.7%, whereas the GC margin is still double-digit, but decreased from 12.1% to 10.5%. On group level, the EBITDA3 margin of 3.4% is slightly below previous year of 3.66%, but we expect group margins to recover in the first quarter of 2023. Slide 15 provides an overview of our current financing power. In total, we have more than 100 million euros of free funds available, resulting from available cash and the revolving credit facility. Needless net leverage ratio, net debt to EVTA, still offers further headroom for debt financing, for example, by taking advantage of the step-up option of the existing revolving credit facility by another 16 million euros. On top of that, we still have authorized capital that could be used for capital increase, which would further strengthen our financing power for future growth. Let's now switch to slide 17 and 18. We again confirm our guidance for 23. Despite ongoing economic and regulatory uncertainties, we expect revenues to reach the range of 1.6 to 1.8 billion euros. EBITDA-3 is expected to reach 50%. The guidance takes into consideration assumptions as outlined on slide 18, for instance, regulatory price changes. The key message remains the same. The specialty pharma market is residing and this goes daily. Also, our growth course will continue. A summary of our strategic priorities is outlined on slide 19.

For this, I hand over to Matthias. Thank you very much. Now some words to our extended growth strategy 25, comprehensively presented several times, so I will only provide a short update. Slide 19 shows the three pillars of our strategy. In addition to strengthening our core business in Germany, we intend to build a European platform and expand truck compounding operations into other European countries. And we plan to further diversify our business model by entering the production of personalized medicine. Our statements on how we intend to strengthen our business in Germany remain valid. We still want to close the white spots in our geographic coverage by acquiring respective labs and or conclude cooperation agreements. And we will further diversify and expand our indication areas as implemented at the beginning of the year. where we started to provide horrendous nutrition for pre-mature babies nationwide. Now, I will update on the second pillar of our strategic priorities. We are dedicated to geographically diversify our activities with the objective to create a pan-European platform for compounding. By internationalizing our activities, we will leverage our knowledge and capabilities, create synergies and cross-heading opportunities, while at the same time becoming more independent of German healthcare regulations. The focus is on value-enhancing acquisitions in Europe and on developing mutually benefiting partnerships in Europe as well. We are currently in ongoing talks with several European players active in the compounding space. We are excited about the development and will inform the market immediately when the first transaction materializes. Now some information on the third and last pillar of our extended growth story. Entering the groundbreaking personalized medicine market summarized under the term advanced therapies meaning medicines based on genes, tissues or cells. all extensive and complex therapies. This fits well as we are already a trusted partner for high-value trust in Germany. Here we are also already in talks with potential high-profile people that would join NATO. Besides that, we are in conversation with potential strategic partners. As outlined by Falk, we have a strong financial basis that enables the financing of our extended growth strategy. All this would lead to more than 2 billion euros in revenues and an EBITDA 3 margin in the mid single digits in the medium term. We remain confident that we are well on the way to achieving these targets as outlined on slide 20. I would like to conclude my presentation with an outlook and a summary of the key messages to also slide 21. We have achieved a solid performance for the first half and further strengthened our market leadership in specialty pharma. We were able to mitigate the impact from regulatory changes by diversifying our product and by focusing on synergies. In the first half of the year, we already focused on inventory management. This has paid off. First success is already visible in July. We expect a very strong third quarter. We therefore confirm our guidance with full confidence, up to 1.8 million euros in revenues and up to 63 million euros in EBITDA-free. In addition, we are holding ongoing talks with several potential M&A targets in Europe. In a nutshell, our growth story is well on track, and we are looking forward to a good second half of 2023. Thank you for your attention.