Eckert & Ziegler Strahlen und Medizintechnik AG

XETRA:EUZ

Earnings Call Analysis

Strong Revenue and EBIT Growth with Positive Future Guidance

The company reported a 17% increase in net sales and a 40% rise in adjusted EBIT compared to last year. The medical segment, particularly radiopharmaceuticals, showed robust growth of 43%, driven by high demand in the generator and hot cell businesses. The balance sheet remains strong with EUR 66 million in cash, supporting global investments. Management reaffirmed the revenue guidance of EUR 265 million and EBIT of EUR 50 million for the full year, optimistic about meeting these targets.

Strong Revenue Growth in Q1

In the first quarter, the company reported robust revenue growth of 17%, with an even more impressive currency-adjusted figure exceeding 20%. This growth is driven primarily by the medical segment, particularly within radiopharmaceuticals, which has solidified itself as a pivotal pillar, contributing substantially to the company's overall performance. The medical revenues soared from EUR 24 million to EUR 34 million, marking a 43% year-over-year increase.

Improved Profitability Metrics

The adjusted EBIT saw a significant leap to EUR 15 million, climbing 40% from EUR 10.6 million in the previous year. The EBIT margin improved from 25% to 28%, reflecting enhanced operational efficiency. Additionally, the isotopes segment demonstrated stable revenue performance, with a notable shift towards higher-margin products, which is crucial for improving profitability. This transition is pivotal as it underscores the management's focus on sustaining upward profit trajectory.

Geographic Expansion and Market Dynamics

The company's growth is not limited to traditional markets. In North America, revenue surged by 39%, demonstrating strong demand for generator business which plays a critical role in their product offerings. Meanwhile, Asia exhibited significant growth potential, particularly in China with a remarkable 64% increase compared to the prior year. The continuous investment in joint ventures and local manufacturing in these regions amplifies the optimism regarding future growth avenues.

Strategic Focus on High-Growth Areas

The company is keen on diversifying its focus and has chosen to pivot away from its pharmaceutical segments, specifically the Pentixa business, which is being spun out. This strategic move allows management to concentrate resources and capital on the more lucrative sectors within radiopharmaceuticals and related services, ensuring more streamlined operations and growth in core business areas.

Financial Stability and Guidance

Looking ahead, the company has reaffirmed its guidance for the year with projected revenues of EUR 265 million and EBIT of EUR 50 million. The management expresses confidence in achieving these targets, bolstered by their strong cash position of EUR 66 million, which allows for flexibility and independence in funding ongoing investments without incurring additional debt. This proactive approach ensures the company can maintain momentum and capitalize on growth opportunities.

Conclusion: A Promising Future

Eckert & Ziegler stands at an advantageous position in a rapidly expanding market for medical isotopes. The combination of significant revenue growth, improved profitability, strategic geographic expansion, and sound financial guidance makes it an appealing prospect for investors. Moreover, the management's focus on high-margin products and exit from lower-margin business segments positions the company well for sustained future success.

Earnings Call Transcript 2024-Q1

[Harald Hasselmann, executive]

Hello, everybody. This is Harald Hasselmann speaking. It's lovely weather in Berlin. The sun is shining and I welcome everybody to today's telco or Teams call in order to present Q1 results. You have received earlier this month end of April already short-term notice because the results were pretty cute. And today morning, we have also issued the full Q1 report. And I'm happy now to lead you through the presentation of the first quarter numbers and figures and results.

With me is Olivier, Julian and Karolin. As usual, happy to support me and also take your questions later on if we are through that presentation. That you know that is the usual disclaimer. You know my colleagues, Jutta and Frank, no change in the book. Now this is a slide which becomes busy and busier all the time we have together here. And the latest announcements was that Mariana Oncology was acquired by Novartis, another bit of big Novartis acquiring Mariana for $1 billion and plus further milestones.

You see this in the middle of that chart here, and it's really amazing what big pharma currently is doing, how much money they do invest into the [ radio nuclear ] medicine market. And I don't see an end of that chain. And if we become a supplier, a service provider or a commercial partner of all these companies to whatever percentage then this is a good signal into the market and also to you as an investor or our shareholders in January.

Basically, that is a lab, which is now a slide which is moving from our bread and butter business, Gallium-68 where the growth is unbroken and the momentum really is as of today that more and more radiopharmacies and other countries I come to that later on are asking for a generator. And the most fascinating topic is on the right side of that slide, that is Actinium. We talked about that earlier, that there is -- the big wave will only start in a couple of years, but now it's a raise who is going to be first in producing Actinium.

These are our customers, some of our customers with whom we are working together. [indiscernible] for Actinium I'm not mentioning other smaller Isotopes or I do not mention Y-90 Yttrium, but also contract manufacturing our sites here in Germany as well as in the U.S. are coming more and more into our focus. The value chain of Eckert & Ziegler. Eckert & Ziegler not AG, but SE, you have seen the change in the legal format remains unchanged. It's the upper part production of isotope for the medical world, producing radioisotopes for the industry part.

Now what has happened in this quarter, and I'm focusing here only on those topics which are within the medical business. We are enabling companies like r-bio to make use of our isotopes of our CMO activities and designed partnership as r-bio for producing an isotope, which is called [ LED Plobonium 212 ] in our Boston facility. We have another supplier agreement with a company in Europe, China for life.

We are also providing them with hot cells, and that is -- there you see that the chain of Eckert & Ziegler is not only providing on the one side, isotopes, but also delivering services and that's why providing them the hot sell let shielded environment working places and laboratory space is of high importance also for those companies. Then with other companies like Nucleus Radiopharma, nutrition contracts have been signed, and the Gallium generator, together with Novartis is also now on the way to be launched in Japan, a big country where the generator and also the products of Novartis are not available yet.

That is going to change. And that's why we are very much focusing on the corporation, which we do have together with Novartis in these countries. The business is isotope is medical. For those who are following Eckert & Ziegler for a longer period already, you are missing here at the right part of that slide, the business of our discontinuing business, i.e. [ Milo, ] Pentixa Pharm, the Pentixa holding because we do not want to focus on that pharmaceutical development any longer, and that's why I've taken that out. We are on the way of spinning that out.

You are all aware of that. Now having a look to last year's numbers, this is already published 50-50 in terms of profitability in terms of revenue, also 50-50 split between the 2 segments. Now let's have a look to the Q1 results in a nutshell as an overview, you see that our net sales, our revenues, double-digit growth, 17% growth. If it is -- if you have a look to the currency adjusted, it would be even above 20%.

So it is even stronger. Medical, for sure, I come to that in a moment, is the momentum. And within medical, it's the radiopharmaceuticals who are the pillar, the most the predominating pillar of medical crops. If you look to the EBIT adjusted, that is our new number, and we mentioned that early on that we want to focus on a more comparable number, which is EBIT adjusted. And there, you see a number of EUR 15 million compared to EUR 10.6 million of last year. So it's 40% more than last year's first quarter of '23, strong growth, and we have then also a strong improvement in our ratios.

If we look to the growth rate in absolute numbers, it's growing so the gross profit is growing. But if you look to the percentages, also the gross margin, if you compare that to prior year, it depends whether you look to the full year of '23 or whether you look to the first quarter of last year. If you look to the full year of last year, then we see a strong improvement for the medical business but also for the overall business compared to last year.

Net income is also mentioned here, even stronger growth, but I don't want to focus too much on that. We have currency effects, hyperinflation in Argentina and things like that. If you have any specific questions, we are happy to answer them later on. Now how does medical look like? I mentioned already, we have 43% growth from EUR 24 million to EUR 34 million, EUR 10 million more. That is, I wouldn't say extraordinary, but it's really a super result and to a strong portion.

It comes from our generator business, but we see also a strong demand in our hot cell in our business in [indiscernible] where we are producing hot cells, let shielded hot cells and there is a strong increase of these business that is likely to continue also in the raining part of the year. Profit-wise, engineering is not as high as radiopharmaceuticals. But if you look here to the performance of overall net sales, there we see a strong increase of these 2 pillars generators and engineering.

EBIT adjusted, basically, more or less, I'm too humble to say there has been doubled, but it's a strong growth in terms of the absolute numbers, EUR 6 million last quarter of -- first quarter of '23 and 9.7% in this year. And that also has an effect on the EBIT margin, 25% last year, 28% this year. Net income, you see here that's a lower number a stronger performance even there.

Isotope business relatively stable in the revenue performance, although there is a shift from lower margin to higher margin products. And that is important because at the end of the day, profitability counts. And that's why we are happy that the oil we logging business has seen a strong uptick in the first quarter of this year, and that is mirrored in also strong increase in the EBIT adjusted number from EUR 4.7 million to EUR 6.8 million.

So in percentage is an increase of 45%. Here, again, why did we change from net income to EBIT before special items. First of all, we want to have a comparable number. And then within -- without any special effects, we want to demonstrate and we give you a number [ 10 ] which allows you to really to have apple-to-apple comparison, and that's why we have EBIT before special items from continuing operations only.

So all the Pentixa business is excluded and also other special items are included. So the normal EBIT would be EUR 14.2 million and then the number which we presented and published earlier EUR 15 million compared to EUR 10 million of last year's first quarter. You see the items in there, and it would not surprise me if the hyperinflation topic, EUR 0.6 million in the first quarter. If you multiply this by 4, you come to the EUR 2 million, approximately a number which might sound familiar to some of you because that is the hyperinflation number, which we also had to report in '23 and '22.

Currency effect is a number which is difficult to predict. And the other items are mentioned here relatively small in this first quarter. Looking to the regional split. There's a strong increase and strong growth in North and the Americas, in particular to North America by 39% and America represents 50% of overall businesses. So that's why important that the generator business, which is increasing there with high prices for these guidance generators is influencing positively contributing to the strong performance of this year.

Asia, I mentioned last quarter already or when we were talking about '23 results that more and more Asia becomes an important pillar for our business. That is also why we invested into a joint venture in Jintan, where we are setting up a factory there, and we see a growth for China by 64% compared to previous year. All in all, in Asia remains the engine on -- still on smaller numbers with roughly EUR 10 million this year, but that is a uptaking curve, and I'm pretty confident that this number will continue.

So this is the picture. This is Europe. On the one side, it's America and Asia to come. Middle East and Africa, 10% of the overall business, 10% growth, 2%. So there is room for improvement, we might say. But if you ask me whether I do see any prospective big growth in these regions, I must admit not for the time being. Radiopharmaceuticals that is within our medical combination of radioisotopes of our generator, the [indiscernible] generator as well as the common generator that technetium generator 99 plus all the cold kits and the contract CMO activities, growing by 30% compared to last year.

If we extrapolate the number for this year, you see for '22 still the number of the acquisition of TEC Nuclear and South America and Argentina, we have then interrogated that growth and are now showing only organic growth. And the number here, what we are presenting here is that we do expect grows approximately 30% compared to last year or this year. If you look to the number of quarter by quarter, then in the first quarter, strong growth and we have to see how this is going to develop.

How does the balance sheet look like? What is important here is our cash, EUR 66 million. So we still have enough money to finance all our investments in Europe, in North America and in China. That is also one of the reasons we want to make sure that we do have enough liquid funds and that we do not have to borrow more money that we do not have to increase equity here so that we finance all our investments out of our pocket.

And that's why cash is king in particular as interests are much higher than a couple of years ago. We want to make sure that we remain here absolutely flexible. All the other items are basically unchanged compared to last year, long balance sheet with EUR 450 million, total assets and by [indiscernible] If you look to the key figures, then I presented already the EBIT before special items, EUR 15 million.

Cash flow, EUR 4 million cash amount, I mentioned, no change in loan liabilities equity ratio, still 50% and headcount. We are growing. We are above 1,000 employees, but we want to make sure that we do invest in that we increase the number of employees in those areas where we are planning to grow. And that's why it is not unlimited growth, but it is on a case-by-case scenario. Here again, the number I just mentioned, no change on that. And outlook. That is, of course, the remaining question that we do reconfirm our guidance of EUR 265 million in revenues and EBIT EUR 50 million for the entire year.

And if I'm going to be asked if that guidance will be at least met, yes, the answer is yes. How does our financial calendar look like? You see some of the conferences where Eckert & Ziegler is participating and presenting numbers here until the end of the year as it looks as of today. Now most important is the Annual General Meeting here and Berlin, everybody is heavily invited June 26 in north of Berlin for those who want to take the vessel here. I am happy to welcome everybody here.

Thank you for listening. And now it's a quarter past 3, so basically exactly what we wanted to achieve. And the floor is open for first questions.