Medios AG

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 listener remote. After the presentation, there will be an opportunity to ask questions. If any participant has difficulty hearing the conference, please press 0 followed by the hash key for operator assistance. May I now hand it over to Claudia Nikolaos, Head of Investor, public relations and USD communications and media.

Welcome everybody to our conference call on our results for the first nine months 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 Neukirch. Matthias will start with an executive summary, followed by Falk, who will then provide details on the financials for the first nine months of 2023, as well as on the outlook for the current fiscal year. And finally, Matthias will comment on Nino's growth story. Both gentlemen will be then available to answer your questions. I would now like to hand over to Matthias.

Thank you, Florian. Ladies and gentlemen, welcome to our conference call on the results for the first 9 months 23. We already published our preliminary key figures for the reporting period on the 24th of October. I am happy to give you some more insights now. were again very successful for Meteos, especially against the background of the ongoing global challenges. Let's go directly to slide 3, providing an overview of the highlights for the first nine months of 23. First, both segments were doing well. Thermaceutical supply had an excellent third quarter, not only benefiting from the sale of inventories, Furthermore, we managed to compensate the headwinds from regulatory changes since September 22 in the patient-specific therapy segment. The business development shows that we are well positioned with our specialty pharma platform and our two operating segments. Additionally, we increasingly benefit from the diversification of our customer groups and have strengthened our position as a reliable partner in the specialty pharma sector. One good example is that we offer highly specialized parental nutrition care for prematurely born babies and therewith prevent an impending supply bottleneck. The integration of DDW and the sterile manufacturing volume of AFS in our lab as part of this acquisition further advanced successfully. Following the strategic sale of Calciplist and Kuhn, we have centralized all blister activities in DPW's lab near Stuttgart. Second, we posted strong 9-month and Q3 figures. Revenue for 9 months grew by around 11%, and EBITDA increased by almost 6%. Excellent Q3 results and record quarter. Revenue up by almost 17% to 490 million euros. EPDAP increased by almost 13% to 17.2 million euros. Operating cash flow was positive for the first nine months and extremely strong in Q3 with 86 million euros. That allowed us to fully repay our loan liabilities. Meteos is debt-free and therefore has a strong financing power for growth and potential M&A. We are confident for the development of the fourth quarter and narrowed our forecast 23. Revenue is now expected to reach 1.8 billion euros and ETT A3 to come in at 60 million euros. Files will provide some more insights on the financials later. And first We are making very good progress with the implementation of our extended growth strategy 25, especially regarding the internationalization of our business. The current focus is on value enhancing acquisitions and on developing mutually benefiting partnerships in North Western Europe. Regarding our ESG activities, we can announce major participation in the UN Climate Ambition Accelerator Program. The six-month program supports us in setting ambitious climate targets and provides guidance on aligning these targets with the Paris 1.5-degree target. Furthermore, we are currently working on the implementation of the Corporate Sustainability Reporting Directive, abbreviated the well-known CSRD, and EU taxonomy requirements. Elements will already be included in our Non-Financial Reporting 23 for meteors still on a voluntary basis. Finally, we are proud to have received another award in October. In addition to the M&A Award and the Best Job with the Future Award in July, we received the Employer of the Future Award in October. In a nutshell, in Q3 we made progress as planned, despite some headwinds. The strategic inventory build-up in the first half of the year has paid off and resulted in a strong cash flow. We were also largely able to compensate for the effects of regulation. This positive development is reflected in the good financials for the first nine months and especially in Q3. Furthermore, we continue to successfully integrate BBW and intensify work on our internationalization strategy. Let me now share a short summary on the financials for Q3 and the first nine months as illustrated on slides four to six. Slide four shows the quarter-on-quarter development of our two KPIs, revenue and EBITDA-free. Q3 was the best quarter ever in Meta's history. Record revenue and EBITDA-free. Nevertheless, the ongoing regulatory price adjustments impacted our PST business to some extent. Consequently, the EBITDA-free margin for the third quarter was a quarter of 3.5%, was slightly below last year's level, but above Q2's margin. This slide is a wonderful example of how regulation offers great opportunities for majors. While our financials were affected by the regulatory headwinds in Q4-22, we posted regular KPIs three quarters later. I would like to stress that regulatory changes may have negative effects in the short term. but has positive effects for Mechos as the market leader in the mid to long term. They also offer opportunities that we know to use, like for example the change distribution process of hemophilia products in the past. Revenue in the first nine months increased by around 11%. to a new record of 1.3 billion euros, and EBITDA III also amounted to a new record level of 46.3 million euros, as shown on slide 5. Most of this growth was attributable to organic growth. Despite regulation and difficult framework conditions, such as high interest rates, NATO has once again recorded sustainable growth. Slide 6 shows that the share of the peer segment increased, especially regarding EBDA screening. We are now roughly at our target share of 40% for PST. This slide also clearly illustrates that we are very well positioned with our two segments. The ratio can and does always change, just as the therapies change. The good thing about our setup is that we can use synergies between the segments and compensate for any possible weakness or influences. Now let's move to slide 7, which you already know very well from my various references. Our network of specialized pharmacies 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 approximately 400,000 individualized preparations in 2023, depending on indication areas and margin profiles. 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 nine months of 2023 and on the guidance for 2023.

Thank you, Matthias. Also welcome from my side. I will now give you an overview on the financial for the first nine months of 2023. As always, the full financial statement can be found on our website. Let's start with slide 9. As Matthias already said, we had a successful first nine months and an outstanding third quarter. Revenues increased by 10.9% to 1.3 billion euros. nine-month record due to continued organic growth in both operational segments as well as inorganic growth by the acquisition of CBW in January 2023. Growth profit increased by 2.6% to €83.6 million with a lower growth profit margin of 6.2% compared to 6.7% in the previous year. This is due to the already mentioned regulatory price deductions and the higher portion of revenue as well as gross profit originating from pharmaceutical supply segments, which shows distinct lower cross-margin and PST segments. The increase of personnel costs by 7.1% to €26.1 million as a result of the acquisition of BBW, the ramp up, functions and scheduled salary increases as well as performance-related variable payments. Despite the constantly growing need of food, organically and inorganically, we were able to freeze other operating expenses in the amount of €16 million at previous year's level. Mainly rising IT costs were offset by savings in a handful of other expense categories. EBITDA-3 grew by 5.7%, resulting in an EBITDA-3 margin of 3.4%, which is below the margin in the previous year of 3.6%. As already mentioned, this is caused by the regulatory price adjustments in September 2022 and also by the higher contribution of the PS segment, which delivers lower EBITDA margins. The EBITDA-3 was adjusted by extraordinary expenses in the amount of Thereof, for stock options, €1.1 million, €4.3 million for M&A transaction costs and €3.4 million for performance-based payments for the acquisition of compounding volumes. Depreciation and amortization slightly decreased from €16.1 million to €15.8 million. Depreciation and amortization effects of the latest acquisition in the amount of were compensated by meanwhile fully depreciated PPA assets of former acquisitions. In the nine months, reporting PVS drawings under the RTF to finance the latest acquisitions and stock buildings to benefit from price increases triggered an increase in financing costs by around €800,000 to €1.6 million. The amount of 45 million Euro drawn under the RCS end of June were fully repaid in the third quarter. Undiluted earnings per share increased by 3% to 0.69 Euro, mainly driven by the strong third quarter within 20% rise in EPS. The first six months were burdened by the already described regulatory impacts. Performance-based payments for the acquisition of compounding volumes and the just-mentioned rising financing costs in the reporting period. The value from operating cash flow in the third quarter of 86.0 million euros is mainly a result of the significant inventory sell-off in the PST grant. In contrast, operating cash flow in the first six months was negatively impacted by the corresponding build-up of inventories. We expect to reduce our inventory by an ongoing sell-off during Q4 with further positive impact on operating cash flow and still expect an operating cash flow of roughly €37 million for 2023. Investing cash flow of minus €16.5 million resulted primarily from the cash component for the DBW acquisition of €19.2 million less acquired funds. As no cash outflows or inflows from significant investments and diventments occurred in the third quarter, investing cash flow was almost unchanged compared to the first half of 2023. Financing cash flow of minus 3.7 million euros resulted mainly from repayments of financial liabilities from rental agreements amounting to minus 2%. 1.8 million euros and interest paid on loan liabilities amounting to minus 1.6 million euros. Free cash flow before MLA amounted to just under 10 million euros in the first nine months and around 86 million euros in Q3 as capex spending was minor. The higher level of inventories of 71 million euro compared with the end of 22 is a normal pattern, as stock level in the S segment normally lowers at the end of the year. This we do also expect for end of 23. Cash and cash equivalents amount to roughly 70 million euro, which is one financing pillar for future growth. The equity ratio decreased from 77.8% by end of 2022 to 74.4%, mainly because of an increase of trade payables to 80 million euros, an increase of 32 million euros by end of the reporting period. On slide 10 and 11, we provide a breakdown of the organic and inorganic growth by segment for the first nine months of 2023. Let's start with the slide 10. Revenue grew organically by 91.2 million euros or plus 7.5% almost entirely in the PS segment. Inorganic revenue growth amounted to 40.9 million euros or plus 3.4% driven by the latest acquisition. Around 82% of the inorganic revenue growth were allocated to our PS segment and the remainder to PST segment. Slide 11 shows the organic and inorganic EBITDA-3 breakdown by segment for the first nine months of 2023. EBITDA-3 increased inorganically by €1.9 million as a result of the DEW acquisition. Thereof, €1.1 million were allocated to our PA segment and the remainder to PST. The increased IT and personnel costs for central functions are reflected in the segment services. Let's now switch to slide 12. Both operating segments contributed to an increase of external revenue of around 11%, but mainly driven by the PS segment. In the PS segment, external revenue increased by almost 12% to around 1.2 billion euro, of which 33.5 million euro were contributed by DBW. External revenue generated by the PSP segment increased by 5% to 175 million euros. EBITDA-3 for the TS segment increased to 33.7 million euros, which corresponds to an increase of plus 19.5%. Even April for the PST segment declined to €17.8 million, 7.8% below the previous year. The decline in margin is mainly due to the already described regulatory advent. So overall, the margin in relation to external revenue in PST was up 0.2% to 2.9%, whereas the PST margin is still double-digit but decreased from 11.6% to 10.2%. As outlined by Mattias, we are well positioned with two operating segments, so that temporary adjustments in one segment can be compensated by the other. On group level, the EBITDA pre-margin of 3.4% is slightly below previous year margin of 3.6% as a result of the already described effects. Slide 13 provides an overview of our current financing power. In total, we have more than 140 million Euro of refunds available, resulting from available cash and DRCS. Media's net leverage ratio, net debt to EBITDA, still offers further headroom for debt financing. Let's now switch to slide 15. Matthias has already briefly presented the further narrow guidance. We now expect the revenue to reach approximately 1.8 billion euros, which should be at the other end of the forecast corridor of 1.6 billion to 1.8 billion euros. EBITDA-3 for the fiscal year 2023 is expected to be approximately 60 million euros, reaching a value in the middle of the forecast corridor of 56 million to 63 million. The key message remains the same. The specialty farmer market is resized and will grow steadily. Also, our growth course will continue. A summary of our strategic priorities is outlined on slide 16. For this, I hand over to Matthias.

Thank you, Kalk. Now some words on our extended growth strategy 25, starting on slide 16, showing the three pillars of our strategy. In addition to strengthening our core business in Germany, we intend to build the European specialty pharma platform and expand drug compounding operations into other European countries. And we plan to further diversify our business models by entering the production of advanced therapies. All this should lead to more than 2 billion in revenues and an EBITDA pre-margin in the mid single digits. We remain confident that we are well on the way to achieve these targets. 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. For example, we started to price parental nutrition for premature babies nationwide at the beginning of 2023. I would like to give you more details on our European growth ambitions, shown on slide 17. Our strategic priority is to create a pan-European platform for compounding By internationalization of our activities, we will create synergies and cross-selling opportunities, while we will also be able to leverage our extensive platform of over 750 specialized partner pharmacies in Germany, by far the largest pharmaceutical market in Europe. We execute a disciplined M&A approach focused on five criteria. First, the target should be a leading top three player. Second, the target should generate revenues of maximum 150 million euros and realize an EBITDA margin of at least 10% or could get there in maximum 24 months. Third, the target should have a nationwide coverage of platform and operate in an attractive regulatory environment that allows outsourcing of compounding. Fourth, the target should also have an experienced management and a cultural and strategic fit with Miltius. And fifth, in the context of a successful transaction, sales synergies and cross-selling opportunities should be realized in less than 24 months. In a nutshell, the deal has to be clearly value-accretive. We are currently in discussions with a handful of targets that meet these criteria. We are excited about the development and will inform the market when the first transaction materializes. Now some information on the third and last pillar of our extended growth story. Entering the groundbreaking market of advanced therapies, meaning medicines based on genes, tissues or cells, all expensive and complex therapies. This fits well, as we are already a trusted partner for high-value trucks in Germany. We have also made progress in this area. We are currently working on the target operating model for the advanced therapies division. We are happy that the new high-profile manager who will be responsible for the new field advanced therapies is about to start soon. Besides that, we are in discussions with potential strategic partners. As outlined by HALS, we have a strong financial basis that enables the financing of our extended growth strategy. I would like to conclude the presentation with an outlook and a summary of the key messages. See also slide 18. We have achieved an excellent performance in the first nine months and especially in Q3. We further strengthened our market leadership in specialty pharma. As outlined, we were able to mitigate the impact from regulatory changes by diversifying our products and by focusing on synergies. We focused on specific inventory management. This has paid off. We are confident about the rest of the year and narrowed our guidance and expect 1.8 million euros in revenues and 60 million euros In addition, we are in ongoing talks with several potential M&A targets in Europe. In a nutshell, our growth story is well on track. Thank you very much for your attention. Falk and I am now available to answer your questions.