Dermapharm : WEBCAST Q1 2024 Transcript

Dermapharm Holding SE

Investors' and Analysts' Conference Call

Q1 2024

15th May, 2024 | 14:00 CEST

Transcript

Speakers:

Christof Dreibholz

Dr Andreas Eberhorn

Britta Hamberger

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Britta Hamberger	Ladies and gentlemen, welcome to Dermapharm's Q1 2024
	webcast. Thank you for joining us this afternoon. Our speakers
	today are our CFO and Chief Compliance Office, Christof
	Dreibholz and our Chief Marketing Officer, Andreas Eberhorn.
	Christof will guide you through the presentation and afterwards
	there will be time for Q&A. Christof, the floor is yours. Please, go
	ahead.
Christof Dreibholz	Thank you very much, Britta. Good afternoon, also from me. My
	name is Christof Dreibholz and I will start with the financial slides.
	I have been informed that there will be a slight delay when you
	the slides are moved forward. I see now slide number three. Yes.
	This is short and hopefully for the last time a summary of our
	development of key financial indicators, revenue and EBITDA,
	adjusted EBITDA, plus the relevant margin excluding the
	vaccine business.
	The last time because we had in both quarters, especially in Q1
	'23, the last significant revenues that were related to the vaccine
	business. Hence, this shows the trend without the corresponding
	results, i.e., we had a revenue increase across all three
	segments of €12.1 million, an above average EBITDA adjusted
	increase of €15.6 million. The reason for that is that is that the
	main driver of the increase was in the branded segment which,
	as such, has an above average profitability. And the
	corresponding impact on the margin was a notable 4.4
	percentage points.
	Next slide, please. These are the numbers now including the
	difference or the variance from the vaccine operations and I think
	I don't need to tell you that with this difference you can calculate,
	based on the slide before, the magnitude of the change in the
	vaccine business.
	So, our revenues came down by approximately €20 million. The
	majority of that, two thirds of that driven by the vaccine business.
	And, correspondingly, also we had a decline in our adjusted
	EBITDA and due to the very high margin of the vaccine business
	the change at EBIDA level was higher, so approximately half of
	that coming from the vaccine business. The impact at earnings
	after tax is a decline of approximately €6 million and we see the
	corresponding bridge with the main drivers of this change on one
	of the following slides.
	Next slide, please. This is a summary of our margin development
	where, again, we see an impact of course, of the vaccine
	business, with the decline in the branded pharmaceutical margin
	but we also see a declining in trend in other health products. The
	reason for that is that especially Arkopharma has been
	negatively hit by consumer sentiment in France with lower
	purchases, which we've encountered now in Q1, declining
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Arkopharma's revenue and results with a corresponding impact also on margin.

What we currently see is that the consumer sentiment is changing and we believe that this trend will reverse in the course of financial year '24. If we, again, eliminate the vaccine business from these numbers, we see the increase I mentioned before, 4.4 percentage points, to approximately 28% of net sales.

Next slide, please. This is the earnings after tax bridge that I mentioned before. The two operating drivers of this, the decline, are the phasing out of the vaccine production and this netted against the growth of the remaining business, which leaves a decline of only €6 million, so the majority of the decline in the vaccine business could be compensated by our existing business.

Secondly, the aforementioned decline in Arkopharma netted against a small increase coming from Montavit, which was initially consolidated mid of last year, so is not included in our Q1 figures. But Montavit only contributed below €1 million in EBITDA in Q1 '24, so the net impact from those two effects is minus €6.4 million in Q1 compared to prior year, Q1 '23.

We see a favourable impact at earnings after tax level from our financial result, with plus €11.1 million, part of that coming from the swap. Our two hedges, we agreed, had a negative impact at year end of approximately €13 million in total, based on the mark-to-market valuation of the two hedging instruments. And due to the development of the underlying interest rates, especially the Euribor, we were able to release part of that provision that was necessary at year end, amounting to €6.1 million.

And then, based in the interest development, that is interest income, especially on our cash amounts, we increased the net financial result by another €5 million. Depreciation charges increased by also roughly €5 million, this coming from Montavit which was, as I mentioned before, not in the numbers Q1 '23, and also Arkopharma, as the Arkopharma PPA was only included in the numbers first in the half year results '23. And those two amount to approximately 50% each of the number you see there.

Next slide, please. This is a summary of net debt and our equity ratio. Since mid of last year, we managed to decrease our net debt figure by approximately €70 million. We will do further repayments of another €50 million on term loan B in '24, plus the scheduled repayment of the promissory note of roughly €40 million also in the coming months. Our net debt/adjusted EBITDA ratio as of March was €3.1 million and well below the covenant agreed with the banks. Our equity ratio, as can be seen

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	on this slide, correspondingly increased by two percentage
	points compared to June '23, to 27%.
	Next slide, please. A summary of our cash flow development
	showing our operational cash flow and this investment, the
	capex we've made, which is obviously impacted in Q1 '23 by the
	acquisition of Arkopharma. If we eliminate that and only see the
	recurring capex, that is approximately the same number that we
	see in Q1 '24.
	And, again, the operating cash flow, the decline by
	approximately €40 million driven by the vaccine business again,
	as the revenue that we recorded in Q1 '23 was already cash
	settled by BioNTech, by 31st March '23, therefore we had a
	notable increase due to this, the recognition not only of earnings
	but also of cash in Q1 '23 and thereby increasing the operational
	capex compared to Q1 '24.
	And I think the next slide is then our outlook. Our outlook is
	unchanged compared to what we have communicated in our last
	webcast. As I mentioned before, we believe that the trend that
	we currently see in Arkopharma will change in the course of the
	financial year, so that we see an improvement of Arkopharma
	and that the segments will continue to develop in line with our
	underlying plan and hence leave our outlook for the full financial
	year at the same level as before. I think that's it and Andreas and
	myself are now open for questions. Thank you.
Operator	We will now begin the question and answer session. Anyone
	who wishes to ask a question may press star and one on their
	touchtone telephone. You will hear a tone to confirm that you
	have entered the queue. If you wish to remove yourself from the
	question queue, you may press star and two. Participants are
	requested to use only handsets when asking a question. Anyone
	who has a question may press star and one at this time. The first
	question comes from Marietta Miemietz, from Pareto. Please, go
	ahead.
Marietta Miemietz	Good afternoon. Thanks for taking my questions. I've two, really.
	One is was there a meaningful amount of corona revenue and
	profit still included in Q1 that would not repeat over the course of
	2024? And related to that, if the underlying dynamics continue
	strong, as they were in Q1, do you see a possibility that your full
	year EBITDA will actually exceed your guidance?
	And then the second question is around the consumer reticence
	that you mentioned. Would you mind just sharing a bit more
	detail, in terms of when that started, what the dynamics are now
	that we're in May. What actually triggered it, including how bad
	is it outside of France? I'm just a bit puzzled because, to me, all
	of the economic and geopolitical issues that Europe faces are
	really not new, so why suddenly and what gives you confidence
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	that it will reverse over the course of the year? Thank you so
	much.
Christof Dreibholz	Andreas, I will start with maybe the first two questions and if you
	could comment on the consumer trend. The first question was
	corona related and, no, there is no significant amount of corona-
	related, vaccine-related revenue in the underlying numbers. The
	main income stream, and also going forward, is going to be from
	the German pandemic preparedness programme that we are
	part of as a subcontractor to BioNTech.
	The second question was whether we believe that if the
	dynamics continue, that we will exceed our guidance? Currently,
	as we confirm our guidance, we believe on what we currently
	see based on Q1, which is only three months, that we will meet
	our guidance and not exceed it. And, Andreas, if you can share
	any insights regarding the consumer revenue development, that
	would be appreciated.
Dr Andreas Eberhorn	Hello from my side and thanks for the question. Actually, we saw
	it in the last couple of months in '23 that the market growth of the
	comparable market or addressable market of Arkopharma was
	slowing down leading in the end to even a decline and
	Arkopharma, as one strong part in this market, obviously is
	affected by that one.
	Reasons for decline, I would say, is a follow-up of inflation and
	also the more reluctance to spend higher prices in the food
	supplement business, as we see. And Arkopharma is positioned,
	I would say, mid to premium priced.
	We see this specifically in a couple of brands where we are
	comparing with competition where the price gets more into focus
	and, for sure, also we analyse and act if needed to stay
	competitive. But we see, majorly in the higher price beauty
	segment, that customers are really eager to spend less or more
	on the value-for-price offer, on that one, in their mind at least.
	Why do we think trends should reverse? From the last months
	we saw, beginning of the year, that the negative market trend
	stopped and is a very slight but still positive trend evolution,
	growing a little bit above 2%. And based also from individual
	customer feedbacks, consumer feedbacks we do, we see that
	obviously this kind of thing is slightly reversing, as well as
	Arkopharma will continue to use the synergies we have and we
	are working on, which will add additional growth and, as well,
	launches coming for the second half of the year.
	So, we are confident that this, on the one hand the better market
	trend, which is now again into the positive edge, as well as the
	own operational business will, let's say, allow us to reach the
	goals we expected.
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Mariette Miemietz	Thank you.
Operator	As a reminder, if you wish to register for a question, please press
	star followed by one. The next question comes from Stephan
	Wulf, from ODDO. Please, go ahead.
Stephan Wulf	Thanks a lot. First one would be on the pandemic preparedness
	programme. Maybe you can share with us some details on that.
	Especially, if I'm not mistaken, a good part of the revenue
	streams in Q1 were still related to '23, so any more details on
	what amount this was in Q1 would be pretty helpful. And maybe
	what we can expect as an underlying revenue stream coming
	from that programme in the course of '24. This would be my first
	one and maybe I can ask my questions one by one.
Christof Dreibholz	Of course. The total amount of pandemic preparedness-related
	revenues recorded in Q1 was between €5-10 million. If you work
	a number in the middle of this range, that is a very good starting
	point. And the pandemic preparedness, the contract was agreed
	mid of last year but effective, that's the correct, effective as of
	mid of year, the contract that BioNTech agreed with the German
	government.
	Therefore, as this was effective mid of last year, we could only
	record this amount beginning of this year as the contract, itself,
	was not concluded by that time. Therefore, the amount that I
	mentioned before, this range, two thirds of that relate to last year.
	One third is an amount that actually applies to Q1 '24 and the
	same magnitude of this amount, of this one third of the total
	amount, will be recorded every quarter going forward until '27.
Stephan Wulf	That's extremely helpful. Thanks.
Christof Dreibholz	You're welcome.
Stephan Wulf	Then, secondly, on Arkopharma. I think in the last year you
	shared also the top line and EBITDA number of Arkopharma with
	us.
Christof Dreibholz	Yes, because we had to do this as part of the purchase price
	allocation. Let me see. You're now interested in Arkopharma?
Stephan Wulf	Q1 2024, yes.
Christof Dreibholz	Last year, revenue was between €60-70 million and this year I
	think you could calculate it if you take the change in revenue of
	the segment.
Stephan Wulf	And my last question is also on Arkopharma predominantly.
	Given the headwinds and the consumer sentiment you
	mentioned, did you change your marketing efforts, mainly in
	France?
Christof Dreibholz	This is a question, and I'm so happy that Andreas is here. Go,
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	ahead.
Dr Andreas Eberhorn	Let's say marketing efforts. The strategy, how Arkopharma is
	positioned and the value it brings we leave it in place. We did not
	change, obviously, because that's the core of Arkopharma. What
	we, for sure, do is when headwinds are there, try to understand
	what is in the core brand. So, which brands are really growing,
	where we see, for example, less price aggressiveness.
	Or if we decide, on the one hand, we need to adjust prices, not
	to lose a higher amount of shares, we obviously stop investment
	on these brands and move investments to others. So, I would
	say we keep our core but, for sure, we look where growth is
	possible, where consumer drive is there.
	This shifted a little bit between the different SKUs of the brands
	but overall the strategy, per se, is not changing and I think it's
	not wise to use the competitors' strategy because there is a
	strategy there and normally you will not win if you just copy what
	the environment is doing. But we are confident that we are on
	the right track and, yes, headwinds are there but I think we are
	well prepared to deliver the results we plan to.
Stephan Wulf	Thank you.
Dr Andreas Eberhard	You're welcome.
Operator	Once again, to ask a question please press star followed by one.
	The next question comes from Miro Zuzak, from JMS. Please,
	go ahead.
Miro Zuzak	Good afternoon, gentlemen. Can you hear me?
Christof Dreibholz	Yes.
Miro Zuzak	Just one question left for me. Could you please give us an
	indication about Q2, how it started in your core business?
Christof Dreibholz	Andreas, do you want to say something regarding? I think we
	can only mention revenue.
Dr Andreas Eberhard	I think, overall, we had a good April, a good trend. If you definite,
	let's say, our core segment as the branded segment, which I
	assume you do.
Miro Zuzak	Yes.
Dr Andreas Eberhard	We continue the trend with nice growth, I would say, across
	businesses. A nice thing is that we at least got much market
	data. With Allergopharma, we are in Germany. In the injectable
	segment, which we only are a part of, we are now market leader,
	which is really nice. So, after a long time, we now reached the
	top. This is a good signal.
	And all our drivers, RX or OTC, where we focus on we are nicely
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	growing. The corticoids as we mentioned a couple of times,
	where we are market leader and we're getting more and more
	unique in the market with that one. Vitamins are still on a good
	trend, both in Germany but specifically also in our affiliates.
	So, I would say we can continue to write at least as we see it
	now, the trend we saw in the first quarter for the branded
	segment, with nice growth, as said, across geographies.
Miro Zuzak	Thank you.
Operator	Ladies and gentlemen, that was the last question. I would now
	like to turn the conference back over the management for any
	closing remarks.
Christof Dreibholz	I think it's normally Britta who says goodbye. We are sitting not
	together. We are in different locations. Therefore, I take this time.
	Thank you for your interest and if there's anything I think, as
	always, we try to be helpful and please do reach out to Britta with
	any further questions.
Britta Hamberger	Yes. Thank you for joining this call this afternoon and in case of
	further questions, please do not hesitate to give me a call.

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