Carl Zeiss Meditec Ag

Good morning, ladies and gentlemen, and a warm welcome to today's earnings call of the Carl Zeiss Meditech Group, following the publication of the six-month figures of 2025-2026. And with this, I hand over to the head of Group Finance and Investor Relations, Sebastian Frerichs.

Hello, good morning, everybody, and thank you for joining our six-month 2025-2026 earnings call. As usual, our management will guide you through our financials, and then we will talk quite a bit today about our ProfitUp program, including the cost-restruction and portfolio measures that we are planning, as well as give you a new outlook for the current fiscal year 2025-2026 and an update on our mid-term targets. With that, I'll hand it over to Andreas Pescher, our CEO, and then afterwards, your assistant, our CFO, will take the financial questions.

Great. Thank you, Sebastian. Well, good morning, the analysts and the investors. Well, welcome to the six-month 2526 of CallSize Meditech AG. Just as I will walk you through the quarterly overview and financial results. After that, we'll dive deeper and share more details about our ProfitUp program. And at the end, we'll present our guidance for fiscal year 2526 and our midterm outlook. And of course, following the presentation, we'll be happy to take your questions. So let me start with an overview of our six months' performance. Multicutter short, top line, and earnings in the second quarter still remained weak. This weakness was primarily driven by currency headwinds and an unfavorable product mix with weaker sales of intraocular lenses in China. Order entry in six months amounted to 1.038 million or billion euros representing a 5.2% decline adjusted for currency declined by 2.3%. We achieved solid order growth in the EMEA region while demand in the Americas and APEC remained weak. Our order backlog saw a slight sequential rise with 435 million at the end of Q2 compared to 405 at the end of Q1. Revenue for the six months amounted to 991 million euros, representing a decline of 5.7% year over year. On a constant currency basis, revenue declined by 2.8% year over year, driven primarily by movement in the US dollar. If we factor in all currency pressures as X, effects amounted to 46 million euros. So FX adjusted revenue was down 1%. Beyond the US dollars, the currency impacts were mainly related to the Chinese Yuan. And in this adjustment, we're also eliminating all currency effects related to the exports into the size groups global distribution network. Revenue declined across both equipments in particularly diagnostic devices and consumables, in particular IOLs, in China. Looking at the revenue mix, equipment accounted for 50% consumables for 40% and services for 10% of total 6 million revenue. Profitability significantly declined in the six months. The trusted EBITDA came in at 60.5 million euros, with the adjusted EBITDA margin at 6.1%, down from 10.7% in the prior year. Reported EBITDA amounted to 39 million euros, with a margin of 3.9%, down from 10.8% in the prior year. We'll walk you through the detailed adjustments later in this presentation. The significant drop in profitability was mainly driven by negative FX effects, an unfavorable product mix, and negative operating leverage. Our co-operating expenses remain stable. We recorded an extraordinary impairment on capitalized R&D related to IDO, infinite vision optics, which pushed up our overall R&D ratio. Now, I would like to hand over to Justus. He will provide you with more background and discuss the SPU figures in more depth. Thank you Andreas and good morning and welcome from my side. So let me briefly walk you through Ophthalmology performance for the first six months. The Ophthalmology SPU delivered weak revenue and a notable decline in EBITDA margin. Let's start with the revenue. Reported revenue came in at 754 million Euro, down 6.7% year on year. And on a currency-adjusted basis, revenue declined by 4.2%. Revenue decline was visible across both equipment and consumables. The performance was impacted by several factors. Of course, the exchange rates, as already mentioned, the loss of the bifocal IOL sales in China, associated with the revocation of the license for one product that we have commented in an earlier call. Scrapping of the recall by Focal IOL resulting in a one of 6 million euro impact on both revenue and cost of goods sold. This scrapping was fully completed during Q2. Equipment sales remain sluggish in Q2, in particular in the Americas region. Our successor bifocal intraocular lens has now obtained registration approval. Once the new round of China's VBP tender launches, we expect a clear opportunity to relist this product in the tender catalog and resume sales. Of course, future pricing and volume allocation will depend on the final bidding outcome. At this point, I would also like to address the timeline for the new VBP round. which many of you have asked about. According to our current estimates, it will most likely start in June to July of this year. In China, refractive procedure volumes delivered reasonable growth in Q2, despite a strong prior year comparison base. Let's move to the EBITDA margin. EBITDA margin of ophthalmology dropped to 1.5%, which is a 7.6 percentage point decrease year on year. Lower EBITDA margin was attributed to gross margin decline by 2.5 percentage points, pressured by the exchange rate headwinds, bifocal IOL scrapping, and an unfavorable product mix. The OPEX ratio increased sharply by 5.1 percentage points, largely due to a 13 million euro extraordinary write-off related to our IBO business. We have prioritized this project, resulting in the impairment of capitalized R&D assets. Excluding the extraordinary IBO write-off, our core operating expenses remained broadly stable. Finally, looking at the revenue split, Ophthalmology accounts for 76% of total OPT revenue. Within ophthalmology, consumables represent 50%. Equipment accounts for 41%, and service contributes 9%. Turning to microsurgery, overall, we saw both revenue and EBITDA margin decline, mainly pressured by currency equities. Revenue in the first six months reached €237 million, down 2.1% year-over-year. And on a currency-adjusted basis, however, revenue grew by 1.8% in the first six months. In Q2 alone, currency-adjusted revenue rose by 4.2%, showing clear sequential momentum and an incremental ramp-up. Q3 started with strong orders and top-line. We expect the currency impact to neutralize and deliveries to continue to improve in the second half. EBITDA margin decreased to 11.5%, a 4.8 percentage point decline year on year. This was mainly driven by a 5.5 percentage point decline in gross margin reflecting currency effects. OPEX remained roughly flat. Looking at the revenue split, Microsurgery accounts for 24% of total revenue. Within microsurgery, equipment represents the largest share at 78%. Service contributes 14%. Consumables account for 8%. Let me walk you through our regional development. Overall, EMEA remained solid, while Americas and Asia Pacific posted softer development. starting with the Americas. The region accounts for 25% of group revenue. Revenue came in at 247 million euro, down 11% year-over-year, while currency-adjusted revenue declined by 3.5%. This reflects a weaker investment environment, driven largely by heightened geopolitical volatility and broader market softness across the region, including the U.S. Moving to EMEA, EMEA represents 35% of group revenue and delivered a solid performance. Revenue reached €346 million. Currency-adjusted revenue grew by 5.6%. Growth was supported by most core European markets, while Middle East and Spain remained sideways. And finally, on Asia Pacific, Asia Pacific represents 40% of revenue, with China contributing 21%. Revenue amounted to 398 million euro, down 10% year over year, and an 8.6 decline on currency adjusted basis. India delivered solid growth, while important markets, however, including China, South Korea, and Japan and Southeast Asia showed some weakness, which weighed on the overall regional result. Turning to the P&L, margins came under pressure in the first six months, while co-operating expenses remained stable. Gross profit declined to €491 million, with the gross margin decreasing to 49.5% from 52.7% last year. This decrease was mainly driven by the currency advents and unfavorable product mix, including loss of the bifocal IOL sales and scrapping of this product in China. Looking at operating expenses, total OPEX increased by around 13 million, mainly attributed to the extraordinary impairment of IBO, and legal expenses included in G&A, excluding these, underlying OPEX numbers remain broadly flat. OPEX ratio increased to 47.2% reflecting negative operating leverage. As a result, profitability was significantly impacted. Both EBIT and EBITDA declined significantly. Earnings per share decreased to 17 Euro cents driven by the lower EBIT and negative financial results, primarily due to higher interest expenses. On an adjusted basis, Adjusted earnings per share was 48 euro cents, excluding non-cash valuation effects on contingent purchase price liabilities, while currencies and hedging results were not adjusted. Let's have a brief look at the bridge from EBIT to EBITDA and to adjusted EBITDA. Regular amortization of purchase price allocations amounted to 14 million euro in the first six months, including effects from DORC and Cogent Surgical. In terms of special items, the current period includes legal expenses in connection with the lawsuit related to former Yantech in the US, the scrapping of bifocal IOLs, extraordinary impairment of R&D we've already discussed. On the contrary, the prior year benefited from a one-off gain from public grants received in China for our IOL production. Adjusted for these special items, EDTA amounted to €60.5 million, with a margin of 6.1%, a notable decline compared to the previous year. A quick overview on the cash flow statement. We delivered strong operating cash generation. This improvement was mainly driven by a significant reduction in receivables, as well as lower income tax payments aligned with our operating performance for the period. Higher investing cash outflow was mainly driven by an increase in receivables against the ZEISS Group treasury, while CapEx ratio was at 2.7% lower than the prior year level. Financing cash flow declined, mainly impacted by the redemption of liabilities in Zeiss Group Treasury. By end of Q2, net financial debt decreased to €274 million at a lower level compared to a year ago. With that, I'll hand the floor back to you, Andreas. Thank you, Justus. Well, let's move to the profit up measures before I then hand back to you for the outlook. Well, before I now talk about specific measures that we're launching to stabilize and turn around call-size Meditech financially, let me reiterate why we need to act. You've seen the slide in our publication in December already. I talked through it. Over the recent few years, our market environment has changed a lot. And this requires us to rethink how we operate as an organization. The curve outlines the path we're taking from scaling through transition and ultimately back to profitable growth. Up to 2023, our focus has been on scaling for growth. Following very rapid growth in our consumables business in the 2010s, 2010s, And coming out of COVID, we needed to adapt our structures to counter increasing complexity. During this period, we implemented new organizational structures to support expansion beyond our established anchor products. We made significant investments, for instance, expanding our manufacturing capacity, enhancing R&D to diversify our portfolio, and strengthening our digital capabilities to enable workflow solutions. We also invested heavily in our workforce and talent base. However, we have been open about the fact that not all of these investments have translated into the returns we wanted to see. Nevertheless, this foundational work was essential to prepare us for broader opportunities and to ensure we have the capabilities needed for the next stage. Since 2023, we began to see a rapid and initially unexpected market weakness. This year and the next few years, we're in a necessary transition phase. This is where we must adapt to rapidly evolving market dynamics and increasing regulatory complexity. Our priority here is to revise our existing structures, portfolios, and footprint. These adjustments allow us to respond effectively to developments that are challenging our profitability. And after that, we expect to see the benefits of our efforts. And this is the phase where we expect to return to healthier growth rates and renew our profitability ambitions and also will reap additional benefits from our innovation pipeline. With our Profit Up initiative, we've launched a comprehensive bundle of measures to counter the recent margin erosion induced by market weakness and cost layers that in many cases were not well balanced anymore to the weaker market environment. We want to restore an adequate earnings power and thereby give us again the financial flexibility to invest in future growth. And to achieve that, we need to realign our global structures and our organizational setup to achieve all three, efficiency, profitability, and customer value. We need to take clear prioritization decisions. This will lead to some products that are not mission critical to our workflow strategy to be divested or phased out. Other products will be added from our innovation pipeline as well as from partnerships to regain market share. As I talked about during our December earnings call, our innovation arm is strong. However, our commercial arm remains underdeveloped in many markets. We'll strengthen investment into market developments and enhance our commercial offerings. We want to achieve a clearly visible acceleration of top-line growth. We will localize products to China, as we have been talking about, as well as to other Asian markets. We will also optimize our supply chains and look for savings in procurement as we qualify additional suppliers. The transfers do not stop with manufacturing. Selected R&D activities are under assessment to be relocated to best cost locations to ensure our cost structures remain competitive. Last but not least, we also have to keep an eye on G&A cost. We have to deal with additional inflation in our infrastructure expenses need to offset this via efficiency measures in GNA. So, summing up, we want to achieve both growth across the market with continuous innovation, as well as show financial strength comparable to the sector. All business segments, functions, and sites are in scope for this exercise. So, what does this mean in financial terms? We're looking at a list of measures that taken together will bring about more than 200 million euros in profit improvements every year, year by year, by the financial year 2028, 2029, three years from now. The measures stretch across all areas. To name some key measures. The commercial organization will work in cost reductions, particularly in headquarter organization and back office functions, as well as higher productivity working with the global sales entities. Operations will work on optimizing supply chains, renegotiating key procurement contracts, and qualifying additional suppliers. We're targeting significant savings from this area. R&D costs will be reduced sustainably by portfolio measures affecting some structurally lower margin products, which are not mission critical for our workflow strategy. We will also work on making the footprint more efficient by moving resources into best cost countries. And we will also refocus our digital health portfolio. In 3NA, we will run efficiency programs across our group functions and business support functions with all contributing their fair share. And all in all, based on current assessments, up to 1,000 current positions across the global organization may be affected. There will also be a build-up of new positions, mainly in lower-cost countries, so the net reduction in jobs will be less. And as I said initially, we are not focusing solely on cost and portfolio measures. To improve our market offering and gain share, we have launched targeted initiatives to grow the top line. Partly, this will come out of our innovation pipeline and will also be supported by increased investments in market development, alongside the newly established commercial organizations prioritization of key strategic growth projects. Our goal is to deliver a clear and visible acceleration in top-line growth. In operations, we have already launched a program to localize manufacturing with China as a main focus, we have discussed before, but we're also going to build capacities in a best-cost country outside of China over the next years. And these efforts will lead to faster growth at more competitive cost of goods sold, leading to better growth profit margins over time. The growth contribution and additional savings from the long-term footprint project come on top of the previously mentioned greater than 200 million euros in savings until 28, 29. But some of it will take longer to materialize in our P&L. And with that, I head back to Justus for more details and our financial outlook. Thank you, Andreas. So where does this leave our financial outlook? As we have discussed in our press release today, we also have to deal with higher infrastructure costs. These include the already present expenses for the new SAP implementation, as well as a new Zeiss Group-wide customer relations management system. In addition, on Friday last week, our supervisory board agreed to the rent contract for the new headquarter in Jena, as well as to a gradual price increase in shared services procured from the Zeiss Group over the next three years. The cost of these business services has been rising for several years with significant payroll inflation. There is no profit margin for any of these activities at the size group level. Exclusively actually incurred expenses are being passed on and the phasing over the next years will be stepwise to mitigate the impact until the efficiency measures are contributing. All in all, we expect to have to reinvest around €40 million out of the €200 million into additional infrastructure expenses by 2028-2029, leaving a net improvement of €160 million. On top of that, we will see acceleration of topline leading to further positive operating leverage, as well as the longer-term benefits of the footprint project. Lastly, as you would certainly expect given a program of these sizes, affecting payroll expenses, they will be substantial one of non-recurrent investment. Cumulatively, these could reach up to 150 million Euro over the three years period. Please understand, there's still a lot of uncertainty in these estimates and we will report on them in detail as we move forward. We will adjust out the non-recurring items related to these initiatives from our guidance achievement. To wrap up, and before turning to the outlook, let me once again reiterate what our target view is for Gaza's Meditech. We are investing into the future and safety of our company. We want to get back to above-market growth. We want to get back to significant investment in innovation. We want to build long-term, financially healthy structures. We want to restore adequate and sector-like profitability, giving us enough financial freedom to seize strategic opportunities. And we want to be a fast-acting, customer-centric company and a high-performance environment with our employees. Turning now to the outlook, the current year 2025-2026 has started on a weak note, as we have discussed at length. with significant headwinds in particular from the Chinese IOL business, but also from the negative exchange rates. We expect the impact of these factors to be much reduced in the second half. Typically, our equipment business is back-end loaded and the main seasonality in our consumables business coming from the Chinese refractive laser summer peak are still ahead. This is why we think the current year would be a tale of two half years. The first half year saw a significant drop in top line and adjusted EBITDA. The second half will see more stable results, not far from last year, or in the best case, even slightly higher. Under these assumptions, we will likely get to 2.15 to 2.2 billion Euro in revenue. Adjusted EBITDA margin will turn higher and reach between 8 to 10%. Special effects such as the ones we have shown you in the first half and possibly the first effects from the profit up measures will continue to happen and we will report on them when we incur them. We currently expect a mid double-digit million euro amount. There are additional IP topics amounting to at least between 10 to 20 million euro in potential impairment on capitalized R&D that might take place in the second half year based on today's assessment of our pipeline and planned measures. Let me also mention another risk that is not yet included in this outlook. Due to the erosion of our profit margin in ophthalmology and the disappointing contribution in particular from the acquisition of Jantec in 2018, the goodwill on our balance sheet being carried by the ophthalmology division is not as well underlined anymore by the cash flows of the cash generating unit. We are currently still analyzing the impact of our profit up measures as well as the mid-term view on recovery of our profit margins. as well as having discussions with our auditors on the viability of the current terminology. A write-down on some of these intangible assets that, based on early estimates, may somewhat exceed 100 million euros in the second half year can, as of today, be expected. We will let you know as soon as we have clarity, because discussions with our auditors are still ongoing. We would treat it as a non-recurring item regarding our guidance, as it is a non-cash accounting charge mainly related to acquisitions of the past not working as planned and profit margin having declined. Economically, the risk to goodwill is most closely linked to the acquisition of Jantec in 2018 and underperformance versus our expectations. Importantly, potential impairment would not change anything we do in the ophthalmology business and has no other impact on our profit-up decisions. Turning to the midterm outlook, organic revenue growth should rise again and reach at least a mid-single-digit percentage over the medium term. Supported by our profit up measures, we are targeting an adjusted EBITDA margin greater than 15% by the fiscal year 28-29. We continue to see the previous target levels of 16-20% EBITDA margin as viable for our business and our sector and generally achievable in the long term. With this, I'd like to conclude our presentation for today and now we look forward to your questions.