Medios AG

Ladies and gentlemen, welcome to the conference call of Medias A2. At a 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. I now hand you over to Claudia Nicolás, Head of Investor and Public Relations

Welcome everybody to our earnings call for the 2023 financial 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. With me is our CEO, Matthias Gergner, our CEO, Falk Neukirch, and our Director, International Business Development, Konstantin von Rieskote.

Thank you, Claudia.

Matthias will then start an executive summary, followed by Falk, who will then provide details on the finances for the fiscal year 2023, the guidance for 2024, and the outlook for 2025. Finally, Matthias will comment on METO's growth story. All three gentlemen will be then available to answer your questions. I would now like to hand over to Matthias.

Thank you, Claudia. Ladies and gentlemen, welcome to our conference call for the full year results of 2023. Today I will only comment on the main highlights of fiscal year 2023 and on the acquisition of PEPAN, an outstanding event for METO. Regarding CEPAN, we will focus on the highlights since most of you probably participated in the conference call just last week. Let's go directly to slide 3, providing an overview of the highlights for the full year 2023 until today. First, a summary on the development of our two operational segments. Pharmaceutical supply had a strong full year, benefiting not only from the scale of inventories at higher prices. Our segment patient-specific therapies was impacted by regulatory headwinds and by performance-based expenses for the transfer of compounding volume from AFS as part of the BBW transactions. The good news is that overall we managed to compensate the regulatory price reductions since September 22 in the patient-specific therapy segment. In 23, we also completed the integration of DPW and the sterile manufacturing volume of AFF in our lab as part of this acquisition in January 23. Following the strategic scale of Kölscher Pista in June, we have centralized all Pista activities in DPWs left near Stuttgart. Now some comments on our financials. All in all, we had a very good fiscal year 23, posting revenue and EBITDA free for the crew. Revenue grew by around 11% to a new record of almost 1.8 billion euros. and EBITDA3 increased by more than 10% to €60.5 million. Moreover, we fully repaid our loan liabilities and we can use the revolving credit facility to finance our operations. And again, we met our Narrow Guidance 23. 5 will provide more insights on the financials later. Regarding our ESG activities, we worked on the implementations of the Corporate Sustainability Reporting Directive, abbreviated the well-known CSRD and EU taxonomy requirements. Elements are already included in our Non-Financial Reporting 23 that we published today, for measures still on a voluntary basis. And finally, I am especially proud that once again, We are delivering on what we promised. In the first quarter of 2024, we acquired the first company outside Germany, the Dutch market leader Stefan Pharmaceuticals, with activities also in Belgium and Spain. An outstanding milestone in implementing meteo's internationalization and growth strategies. This brings me to slide 4, presenting an executive summary of this transformative and value-enhancing acquisition. What is special about the acquisition? This acquisition is the first milestone in our journey and vision to build the leading European specialty pharma platform. In addition, you get immediate market access to three European countries, the Netherlands, Belgium and Spain. After closing, MAKERS will not only be number one in Germany, but also number one in the Netherlands. Additionally, we will have a footprint in Belgium and Spain. In other words, the new MAKERS Group will have a leading position in compounding of specialty pharma in North Western Europe. With the acquisition, we will significantly diversify our product portfolio and value chain in specialty pharma. We will run a network of 23 owned pharmacies in the Netherlands and will be adding the API business. API stands for Active Pharmaceutical Ingredients and the high-margin non-sterile business as well. The good cultural fit of the two groups strongly supports the cross-selling potentials and synergies. The acquisition is being made at an attractive multiple and will be mainly financed by cash and debt and only to a small extent by new major shares. The share component also was a strategic decision as we will gain branches and European private equity companies as a new investor. I would like to stress that the transaction is immediately EBITDA-free, accretive and will increase our earnings margins from the very beginning. We expect to significantly exceed the 100 million Euro mark in EBITDA-free already in 2025 with an EBITDA-free margin of 5% plus. Fife will provide more insight on the financing later. Let's switch to slide 5, providing a snapshot on Feban. Feban is a fast-growing leading pharmaceutical compounding platform founded in 2004. We are very pleased to welcome around 600 motivated CEPAN colleagues. As Chuck said, CEPAN has activities in three European countries with a leading market position in pharmaceutical compounding in the Netherlands. CEPAN's revenue and EBITDA adjusted through an average growth rate of more than 15% over the last three years. The EBITDA adjusted margin amounts to an attractive 18%. For a deep dive on the SEPAN operations, you can listen to the replay of your SEPAN investor call last week and see the slide on SEPAN in the appendix of the presentation. The replay is available on our investor relations website. Now some comments on the financials for the fourth quarter and the full year of 23, as illustrated on slides 6 to 7. Slide 6 shows the quarter-on-quarter development of our two KPIs, Revenue and EBITDA3. After our third and best quarter in nature's history, Revenue and EBITDA3 were below this level in the fourth quarter, also due to the already described regulatory price adjustment impacting our PST business. Consequently, the EBITDA free margin for the fourth quarter of 3.2% was slightly below last year's level. However, revenue in the fiscal year 2023 increased by around 11% to a new record, and EBITDA3 also amounted to a new record level, as shown on slide 7. Most of this growth was attributable to organic growth. Despite regulation and a difficult economic environment, such as high interest rates, METEOS has once again recorded sustainable growth. Now let's move to slide 8. Supplemented by state funds operations and geographic coverage, in three additional European countries. Our German-wide network of around 800 specialized pharmacies will be enlarged by SEBAN's network of own and additional partner pharmacies. SEBAN's network covers around 3,300 pharmacies and more than 200 hospitals as well as the 23 own pharmacies. This is an excellent basis for our further European expansion and the realization of synergies and cross-selling opportunities. This also means that the number of the currently around 400,000 individualized preparations in 2023 will substantially increase. On slide 9, we present our progress on some important ESG KDIs for 2023. Regarding the S in ESG, we are happy to maintain The high proportion of women in our overall workforce, namely 58%, as well as 46% in management positions. In the area of products and services, we were able to keep the number of customer complaints measured against all compounded preparations, respectively deliveries, very low at 0.2%. Looking at the environmental KPIs, we can see that energy efficiency measures showed its effects. For this reason, we consumed 9% less energy in 2023 than in the previous year. Moreover, the share of green electricity, which 41% in 2023. The lower energy consumption and the green electricity purchase led to 41% less emissions in the field of scope 1 and scope 2. This is all from my side for the moment. I now hand over to Falk to provide more details on the financials for fiscal year 2023, the guidance for 2024, as well as the outlook for 2025.

Thank you, Matthias. Welcome from my side. I will now give you an overview on the financials for the fiscal year 2023. A full financial statement can be found as always on our website. Let's start with slide 11. As already mentioned, they had a very good fiscal year 23. Revenues increased by 10.8% to almost 1.8 billion euros. Again, a record due to continued organic growth in both operational segments as well as inorganic growth by the acquisition of BBW in January 23. Gross profit increased by 2.9% to €112 million, with a lower gross profit margin of 6.3% compared to 6.8% in the previous year. This is due to the already mentioned regulatory price deductions, the performance-based payments and the higher portion of revenue as well as gross profit originating from pharmaceutical supply segment, which shows lower gross profit margins than PC segment. The increase of personnel costs by 8.6% to €36.6 million is a result of the acquisition of BBW, the extension of compounding in the CSC segment, the continuous build-up of central functions and scheduled salary increases as well as performance-related special payments. Excuse me. Despite a constantly growing media scoop, we were able to decrease other operating expenses by €1 million to €23.0 million. Rising IT and marketing costs were more than offset by savings in other operating expense categories such as legal and consulting costs, mainly by centralizing of SOFA decentralized finance functions. EBITDA3 grew by 10.3%, resulting in a stable EBITDA3 margin of 3.4%. As previously stated, the margin was burdened by regulatory price adjustments that started in September 2022, as well as the increased contribution of PS segment, which led to lower EBITDA margins. The EBITDA pre was adjusted by extraordinary expenses in the amount of 8.1 million euros, thereof for stock options almost 2 million euros, around 1 million euros for M&A transaction costs, and around 5 million euros for performance-based payments for the acquisition of compounding volume. Depreciation and amortization decreased from €22.2 million to €21.0 million. An increase in financing costs by around €0.9 million to €2.0 million was triggered by drawings under the RCF, mainly due to finance the temporary increase in inventories in the PS segment. Undiluted earnings per share slightly increased by 2.6% to €0.79. Operating cash flow for the fiscal year amounted to €16.4 million. Frankly speaking, this is not the amount we were aiming for. In 2023, we were very much forced to focus on EBITDA generation in the PS segment to offset the regulatory headwind of the PST segment. We were very successful in doing that, but our EBITDA results proved. But this has also forced us to build up stock above the normal level, which we planned to sell off fully in the second half of 2023. The return to the normal level of inventory and receivables was unexpectedly delayed, though we saw a higher level of inventories and receivables end of December 2023 compared to year end 2022, which lowered the operational cash flow of 2023 by roughly 22 million euros. The explanation for this is one thing doing better the other. For me and the whole board, cash flow is key. Therefore, I and the responsible key management will from now on even heavier focus on this key aspect. The goal is to generate a perpetual positive operating cash flow in every quarter and to increase the annual operating cash flow significantly in 2024. We already started in Q1 2024 and I'm optimistic that we will be able to show a positive operating cash flow already in Q1 2024. Investing cash flow of minus 16.6 million euros resulted primarily from the cash component from the DBSW acquisition of 19.2 million euros less acquired funds. Excuse me. Financing cash flow of minus 8 million reflects the repayment of the revolving loan facility and interest payment in the amount of minus 5.3 million euros. Approximately minus 2.4 million euros were paid under long-term lease contracts according to IFRS 16. Free cash flow before MLA amounted to approximately €15.1 million in 2003, following the lower operating cash flow as just explained. Cash and cash equivalents amount to roughly €71 million, also below the amount at the end of 2022. The equity ratio increased from 77.8% by end of 2022 to 78.8% by end of 2023, mainly because of a decrease decrease of non-covered liability. Let's now switch to the slide above. Both segments contributed to the increase of external revenue of around 11%, mainly driven by the PF segment. In the PF segment, external revenue rose by 12.1% to around 1.6 billion euros. External revenue generated by the PEC segment increased by 2.7% to 226 million euros. EBITDA pre for the GST segment amounted to 46.7 million euro, a plus of around 23%. EBITDA pre for the GST segment declined to 21.8 million euro, around 8% below the previous year level. The absolute decline and also the declining margin is mainly due to the already described regulatory headwind. The margin in relation to its external revenue in PS segment was up 0.3% to 3.0%, where the PSE margin decreased from 10.8% to 9.7%. As said, on proof level, the EBITDA pre-margin of 3.4% matches the margin of the previous year. Slide 13 provides an overview on the financing of the cash component for the C1 acquisitions. We will finance the cash component of €235.3 million by drawings under the already agreed bridge facility of €200 million. The bridge facility has common market interest rates which are increasing during the term of the loan. The remaining €35.3 million of the cash process price will be paid by cash at hand of further drawings under the additional available syndicate loan over €75 million. The bridge facility is planned to be replaced by a long-term debt facility like a bond or a step-up of the existing syndicate loan. We expect to generate free cash flow less interest payments of 30 to 40 million euros starting in 2025, which then will be used to repay the new debt facility over a term of 5 to 6 years. Let's go to slide 15, providing our guidance for the full year 24 for the neediest group, including Seban, and the outlook for 25, as already presented at our contract call on the acquisition of Seban last week. For fiscal year 24, we expect revenue to reach the range of 1.9 to 2.1 billion euro, reflecting a growth of 11.1%, considering the middle of the corridor. EBITDA3 is expected to be in the range of €82 million to €91 million, a disproportionate rise of 43% at the middle of the guidance corridor. The guidance for 2024 is subject to the assumption that we will reach control on C1 in May 2024. The EBITDA pre-guidance includes integration costs, but is adjusted for extraordinary expenses like M&A transaction costs, expenses for soft-option programs, performance-based payments for compounding volumes, and implementation costs for an ERP system. As an outlook for 2025, not as a guidance, the further integration of C-Band lead to revenue of approximately 2.15 billion. The reason for the slightly lower revenue increase is the focus on increasing margins and cash flow, which to a certain extent also means that we would accept discontinuing certain revenue with lower profitability. Also as an ambition, but not to be understood as a guidance, we expect in 2025 for the first time to cross the 100 million euro mark in EBITDA pre by a targeted EBITDA pre of around 110 million euro and a corresponding EBITDA pre margin of around 5.1%. This shows very clearly that the acquisition is EBITDA pre margin accretive. We will significantly increase our profitability with a potential EBITDA pre margin above 5%. A summary of our strategic priorities is outlined on slide 16. For this, I hand back to Matthias.

Thank you, Falk. Our growth strategy strongly advanced with DEFAN. Its three pillars are outlined on this slide. In addition to strengthening our core business in Germany, DEFAN will enable to expand our operations into other European countries. and we plan to further diversify our business model by entering the production 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 drugs in Germany, and we will be one in our new European markets as well. In our last earnings call in November, I announced that we hired a new high-profile manager who will be responsible for the new field advanced therapies. We are blessed to welcome him next week. As a result of Sipan's integration and the implementation of our growth story, we defined financial targets for 2025, replacing and exceeding our previously mentioned mid-term targets. as just presented by Falk. We remain excited and confident that we will achieve these targets. In a nutshell, our growth story is well on track. Thank you for your attention. Falk, Konstantin and I am now available to answer your questions.