Horizon Kinetics Medical ETF Price & Performance (MEDX)

Third, operational excellence and cost discipline Fourth, portfolio. And as well as five, our culture. I will provide a detailed update in the third part of this presentation after Chinese financial review. Let's look more closely at our business unit revenues on slides We are very proud of our team business unit grew significantly above market growth rate in 2024. And we are pleased with the development of our Surgery business unit. Which grew as well. Truck delivery declined due to the dual source impact which will continue in 2025. We will only see material device revenues from our new platforms towards the end of twenty twenty six. The truck delivery business unit continues in our strategic pivot to healthcare. I will elaborate more in the strategic part of this presentation. The Industry Business Unit decreased organically year on year driven by weak end markets and volume not record since our Poland exit. Beauty top line increased nominally compared 2023, This was driven by successful product launches and the strong contribution of the Xiaomi which is delivering on plan. The decline in organic beauty revenue was mainly due to the sluggish end markets worldwide and the corresponding lower order intake.

With this, I will hand over to Jenny. Will take you deeper into the financials. Thanks, Renee. Our main KPIs can be seen on Slide eight.

As already explained, our revenues declined year on year. Acquisition effects more than offset foreign exchange impacts with underlying organic growth negative year on year matching our revised guidance of flat to negative. Compared to the second half of 'twenty three, group revenues increased by 1.83.3% organically. Four versus the first half of twenty twenty four, revenues also increased by 0.6% Both segment gross margins expanded at med mix level by 50 basis points. I have a further slide on that later. Our overall gross profit and margin also expanded by 60 basis points as in addition to our nice product margin growth our under absorption and global operations and facilities costs declined. We are particularly pleased as Renai mentioned with our cash flow metrics Operating net cash flow and free cash flow both made a strong recovery in 2024. I'll describe the detailed drivers on our Slide 12. Our negative net income for the year reflects the impact of impairments related to the growth and efficiency program, Excluding this, we are flat to year on year. Net debt to adjusted EBITDA ratio is improving year on year due to lower debt. On Slide nine, you can see the 2023 to 2024 revenue bridge.

As mentioned, within Healthcare, strong dental and surgery growth was offset by a decrease in drug delivery. 2.6% more than offset foreign with underlying organic growth negative year on year in line with our revised guidance. On the right in the colors, you see the percentage revenue contributed by our business units. Consumer and Industrial segment contributes 63% of revenue just one point lower than in 2023, and Healthcare segment, therefore, 37%. On Slide 10, We can see our full year Healthcare and C and I gross profit year on year. [indiscernible] Total segment gross profit was broadly stable at 217,000,000 delivering a margin of 45%, a year on year increase of 50 basis points. On the left, Healthcare segment gross profit increased by 1.3% year on year to CHF107 million, broadly in line with organic revenue growth. And delivering a gross margin of 61.5% an increase of 90 basis points. Dental business unit revenue growth offset pressure within the drug delivery and surgery business units. On the right, Consumer and Industrial segment gross profit of CHF108.8 million decreased by 0.2% year on year delivering a gross margin of 35.4% an increase of 20 basis points. Efficiency gains in industry business unit after the opening of the Valencia plant drove the improvement.

Supported by a full year of the accretive Xiaoye acquisition in Beauty Slide 11 shows the walk from our adjusted We Pricing upsides almost offset the negative volume movement. Upsides from margin and mix reflect more dental volume in the mix, at accretive margins and industry efficiency gains. Operating expenses increased CHF5.1 million year on year due primarily to the impact of the ramp up of the Atlanta and Xiaomi sites. Other items include the non repeat of 2023 impacts, positive ones, related to the closure of our Poland facility, and 2024 impacts of the growth and efficiency program and one off increases in pension and long term incentive plans. [indiscernible] reflects the year on year difference in the value of one off or non operating costs, restructuring and impairments. Reversed out of operating expenses and margin to calculate adjusted EBITDA which stayed flat year on year at 19.1%. Turning to Slide 12, you can see the walk from our operating net cash flow in 2023 to 2024. Operating net cash flow increased significantly to CHF61 million up from CHF17.9 million in 2023. This improvement was a result of collective hard work and primarily due to better networking capital management.

With significant decreases both in inventory and accounts receivables. And lower capital expenditure after the completion of Alvalence facilities. With that, I would invite Renee to come back to discuss our strategy and outlook. Thanks, Jenny. When I took off this last June, I was given a clear mandate for change. We have been implementing our measures along the following three areas. Firstly, strategy. Secondly, structure, between powering the business unit ensuring clear accountability And thirdly, the launch of a growth and efficiency program in August Let me give you a detailed overview in the next slides. We have refined our strategy in order to create a sound foundation for our future growth. Our strategic priorities focus on the ADAP adaptation of our organizational setup to enhance our customer proximity [indiscernible] and ensure clear accountability. First of all, we are creating an entrepreneurial culture that empowers our employees and rewards individual and team performance at [indiscernible] Of our organization. We strive to achieve a flawless customer experience To this end, we have simplified reporting lines, defined clear accountabilities and streamlined our processes to ensure we are fast and agile and deliver the performance our customers [indiscernible] This is relevant for all aspects of our customer experience in innovation, order execution and after sales services.

As we have stated, in our results, our PEN2 business unit has resumed strong growth in 2024. We have increased our focus on fast growing product categories to further reduce our dependence on the impression category. We are building strategic partnerships with our key OEMs to foster collaboration and provide them [indiscernible] In addition, we will advance our trade channel strategy with innovative products and competitive private label offerings. In our Surgery business unit, with the build up of our Atlanta site, we started to in source manufacturing and increased our customer proximity. This enables us to build a full portfolio of value adding services for our customers and therefore become a strategic partner, providing them also a competitive advantage. Today, large MedTech companies are increasingly seeking to collaborate in a platform approach if their supplies and MedMx is one of the few players who can provide a comprehensive range of products We have solutions for bone repair and tissue banks, surgical sealants and adhesives. With the market trend to injectable drugs, drug delivery is one of the most attractive growth areas in healthcare. In our truck delivery business unit, in addition to our existing devices in the market, we have two next generation device platforms [indiscernible] Both are at the beginning of their life cycle.

We have a strong pipeline of projects for originated trucks, biosimilars and generics and for a variety of indications. Our focus is on commercializing these platforms ramping up our capacity and for PivotChat, ensuring launch readiness with our customers. We are very well positioned to capture the growth opportunities and are already working with leading pharma companies who use our solutions for demanding applications.

For example, for the injections of trucks with high risk cost, it is or emergency devices. In our Industry Business Unit, our Valencia facility after rigor buildup within one year now delivering our full portfolio. The next step, We are focusing on increasing efficiency and profitability through smarter flows and automating production processes. Our strategic focus also lies on implementing new core development projects with our key customers. Our long standing relationships and our proven products are a sound basis for innovative solutions such as our green light portfolio to enhance our customers' competitive edge. In our Beauty business, we have been continuously increasing our profitability through new high margin projects showcasing our capabilities. We have identified a broad panel of further efficiency and our automation project as part of our growth and efficiency program. Integral part of our strategic review is the continuous evaluation of our portfolio of activities and keen focus on optimizing our capital allocation. Our clear goal remains to pivot towards healthcare. And increase our business stake organically or to strategic acquisitions. In areas we see high growth, and high margin potential.

I'm convinced that our growth and efficiency program is key to reaching our full potential and delivering on our strategic imperatives. Firstly, to ensure that we can allocate sufficient resource our strategic priorities. We must reduce costs in non core areas. Secondly, we need to be faster, more agile by reducing complexity. And thirdly, By renewing our high performance culture and empowering the teams we can ensure improved customer experience. Let's move to Slide 17. With the program, we will reduce costs, which will enable us to reallocate our resources to the high priority growth areas. We will implement over 80 initiatives over the next two years targeting operational improvements, like automation of manufacturing processes, simplifying process loads, and insourcing differentiating activities. FP reduction, and other cost saving measures such as reducing headquarter and support functions. The target cost out of CHF 30,000,000 over the next two years. With most of the actions to be executed in CHF twenty five and a significant portion of the same expected to have an impact already in '20 Part of the cost out will be reinvested to pursue our healthcare growth strategy and increasing efficiency in our production facility. We will continue to invest in R and D, which will ensure that we stay at the forefront of innovation.

On Slide 18, you see our capital allocation prints. Needless to say, these are integral part of our strategy. These are shown in descending order of importance. The focus of our capital allocation is on the one hand to strengthen our foundation and on the other hand to invest in profitable growth. Let's go to Slide 19. And let me talk about our innovation capabilities. Which are vital to fuel our future profitable growth. I would like to show you the broad range of our innovation projects We have innovations in every business unit. But they have one common theme, They provide our customers with a competitive advantage. On Slide 20, you can see two innovations from our BeautySet business unit. And one from our Industry business unit. With our next generation shadow printing decoration We are able to create attractive and iconic surface structure without adding any materials Therefore, recyclability remains unaffected by decoration. The second picture features PCR PP material that is suitable for primary packaging in the cosmetic industry such as bubbles or for vegetable mascaras, or other makeup packaging. It reduced significantly the CO2 footprint as it's a 7075% CO2 emissions. Compared to virgin PP material.

The packaging is made out of a minimum of 95% post consumer recycled contact and this does not affect caller brilliance. [indiscernible] family in our industry unit business units lowered significantly the CR2 footprint of the cartridges as well. Since it's produced with up to 200% recycled plastics, Our customer, SITA, has just adopted these new solutions and will switch its current portfolio to our new green line range. Slide 21. Shows a good example of our investment in faster growing dental product categories. The picture shows a device [indiscernible] which provides our OEM customers with competitive advantage as it is precise, features more application per unit and reduces material waste. On Slide 22, you see an example of an incremental innovation in our search group business unit. The vented piston in our GE system significantly reduced the time required to prefill the syringes by our OEM customers and tissue banks. This provides some significant deficiency gains. But also the vented syringe allows for more effective and mixing of bone graft material in the Operation Room. So also an advantage for our end users. Is a next generation AlpinCheck with unique features that provides attractive benefits for our customers and their patients.

We have spoken about PikaCheck in the previous call. Let me shortly repeat. Firstly, PizzaChat has only eight parts in total compared to most alternatives on the market that have at least 15 parts and sometimes as many as 18 or 19 parts.

This offers not only cost advantage, but also increases the reliability [indiscernible] Which creates a competitive advantage for emergency applications. Its optimized size and shape makes it easier for patient to hold the device and that may disturb the drug. BitcoCheck is also designed for higher risk a challenge for many injectable drugs.

It has around two third less CO2 footprint compared to other available Alpine sectors. The platform is ready, tooled up, and assembly lines are being put in place as we speak The first clinical use is planned with our customers this year. With this example, I've concluded the innovation part of this presentation outlook. Which I'm sure is of great interest to you. 2025 will be a transition year. We expect our Healthcare segment revenues to be flat year on year with dental and surgery business units growing strongly. Offset by a decline in our truck delivery business unit due to dual sourcing Material device revenues from our two new plot We expect our 25% to be flat on an FX adjusted basis. [indiscernible] the important foundation for stronger and more resilient future in 2020. We will see the first impact of our growth and efficiency programs but this will be partly offset by the cost of some of the programs we launched and reinvestments in our growth opportunities. [indiscernible] anticipate that our adjusted EBITDA margin in 2025 will be between 1819%. Looking further forward, in the midterm, over three year period, we expect the compound annual growth rate in the revenues of above 4% and an adjusted EBITDA margin above 20%. [indiscernible] With this, I will hand over to the operator for our Q and A session.

Thank you. Thank you. We will now start the Q and A session.

In order to submit a written question, please submit your question via the dialogue on the left side of the live stream. We will then read them out loud and answer them. If you prefer to ask your question verbally, please click on the tab Audio Q and A and then enter the audio Q and A session. If you're ready to ask a question, bottom of your screen. The moderator will then call your name will give you speaking privileges and you can ask your questions. In case your organization has very strict IT security in place and you cannot join the audio Q and A, might consider asking your question via text Q and A or dial in via phone. Instructions on how to dial in via phone can be found on the panel on the right side of the audio Q and A screen. At the moment, there are no written questions. So we will take the first question from Alessandro Folletti. Alessandro, you are now ready to talk. You have to unmute your [indiscernible] [indiscernible] mute, Alessandro. You have to unmute. Yeah. Now we can hear you. Thank you very much. It was an intelligence test.

You passed.

Yeah, barely. Good morning, everybody. Thank you for taking my questions. I would like to ask one still sort of backward related 24 and then a couple looking forward more. So if you agree. And my first question backwards. I don't understand in the gross margin of the healthcare system why did it actually not developed that strongly considering the The fact that dental was really doing well. So I can handle that one, Alexandra.

You're right. As Renee mentioned, at this point in time, we are really pursuing the faster growing product categories in the dental market. To reduce our reliance on the impression material product category. And so at the moment, there are no real steps changes in the products we're offering. This is to come with some exciting product introductions. At the moment, the margin that itself in dental has not been an issue. We had the volume challenge but the margin is relatively flat. So hence we need to help because dental has a nice healthy margin, but the margin itself is not significantly increasing. On the other side, the challenge within healthcare remains the volume decline due to the dual source in drug delivery. And this is having a negative impact because it puts more pressure in the mix in drug delivery on the projects, which are lower margins than the product device.

Right. Okay. So basically, acceleration of mix in this sense?

Correct. [indiscernible] So now going forward, First of all, the cost program the cost sorry, the gross program I imagine it has some cost, right? Because otherwise, I don't understand your EBITDA guidance for 2025. Can you put a number on that cost?

Take it, Raffel? So I think numbers are challenging, but I think you're right. When we say that we would take cost out of 30,000,000 If you look in the guidance and some of the comments Renee made, the purpose of this program is to unleash growth by reallocating resources into our high growth high margin areas and pivoting to healthcare. And you're right, there are some costs attached to that. On the gross margin side, we will invest in automation and efficiency programs in both C and I business units. These are not new for facilities or ramp ups. So these are not one off costs that would be eliminated from adjusted EBITDA. There will be additional costs because we're accelerating our programs putting automation programs in parallel what we might otherwise have to spread out. So we will see a negative cost impact while we're working on the automation programs. And that will keep gross margins down in 2526%. In terms of other costs related to the program, there are also some material costs within the operating expenses.

If we're talking provisions and impairments, these would be eliminated from adjusted EBITDA. But we also wanted to unleash a our growth potential and this means investing in selling teams, for [indiscernible] will strengthen our our kinds of things that will be a step up in a one off but part of our normal order of business.

Yes. Absolutely. For example, if you look about our sales organization, then we [indiscernible] really had a positive impact We have also restructured our short three sales force and we are strengthening this year. We are really focusing also strengthening our industry sales line synergy, which Okay. But when I look at the €30,000,000 cost saving, I mean, on our €100,000,000 EBITDA, all I say 90,000,000 EBITDA like this year is a third of that. So it's a big cost saving Mhmm.

I would assume that at some point this surpasses these additional costs.

Absolutely. Absolutely.

But we envisage it would take two years to implement program. So it won't be until the third year of our midterm guidance that we see the full impact of the cost out. And hopefully by that point as well, we will be recognizing more volume These of course, our outlook is always organic only. So keep that in mind. The purpose here is to unleash cash and capital so that we can inorganically as well as organically invest in healthy edge period as well. And this is not taken into account in the plan.

Right. Okay. So I take it that the 20% margin target or you say above 20% I mean, 30% is also above 20%. But if you say above 20%, I take it, I don't know, 21, 22. Yes. Which is kind of far away from what you had before. So The fact that you are staying kind of close to the twenty twenty one is because of what you just said, that it will take a while to implement. But then afterwards, we might be looking for a higher number than just 20 plus.

Yes. And one thing which comes on top of that, what you just said, Alessandra, is when we look about the device sales. [indiscernible] This will also come beyond these two years. Because this will really start end of twenty six. This will have a significant impact also on the profitability When you look about our product delivery, At the moment, and we said it already last time that share of because we have two types of businesses. One is device sales, the other one is project. And in the next two years, still we have the device sales. The share of the project business will increase. And the project business has lower margins.

Can I ask you one last question? You mentioned when I I think in the voice and remember it was written. Clear focus or clear intention to pivot to healthcare. Now I'm not sure I understand properly because when I look at all the innovations slides and all the growth programs slides, etcetera, You are investing actually a lot also in in consumer and the industry. So how do I sort of reconcile these sort of two statements that seem to me somewhat [indiscernible] Let me just about if you're looking about just the beauty segments, In the beauty segment, you have to innovate in the fast cadence because this is what the market is expecting. These innovations are most [indiscernible] The same is in industry. This is mostly incremental innovations. For example, the green line, which we are doing in industry, has a significant benefit for the customers, but for us it's an incremental innovation. It's a material change. This doesn't require a new tools or anything, but the material This is what we are really driving on the C and I segment. If you look about what we are doing on the healthcare segment, then this is really something that in a way to drive offline.

And these are much more than just incremental innovation. We We have some next generation developments which we would like also to show in the quarter of this year. To it, and which will drive the top line. And this is to be, I think, a very exciting topic at the more practical market day. All right. So I take it that for now, There is no mention of focus on health care does not really imply any changes to the portfolio.

When you look about inorganic focus That's I have to say, this is 90% health care. We are really focusing whatever is inorganic, that's our main focus is health.

And I think, Alessandra, just to add on that capital allocation slide, we wrote strengthen our balance sheet for a reason. We need to cut costs and create a little bit of a pool of funds so that we can really start to go back to pursuing this inorganic strategy. So the inorganic strategy will be important, but we have some homework to do and that's why we need to really focus on the growth and efficiency program this year.

Thank you, Alessandro. I will move you to visitors again. If you have a question at the later stage, just join the audio Q and A again. We are now switching over to the questions from the Board. The first question is from Michael Schulz, JotMS.

How much of the EUR 30,000,000 cost savings will be reinvested into growth?

Thank you, Michel.

Think about reinvestment of growth It's a little bit depending also on the opportunities we have, particularly when it comes to inorganic growth. But Now I think in the first in this year, [indiscernible] the main focus is actually in operational efficiency. So the main investments will go into into our optimization in Valencia. And another significant part of our investments is going into some innovation projects, particularly in dental. And about the percentage, I think, you have more precise numbers, Jenny? I think it is difficult to say it depends on the pace of the top line growth that we can achieve because that will drive the bottom line as well. But if you look at our EBITDA percentage, over the plan, I mean, we were at 15%, 15.5% right now. And we target, as we said, to be above 20 by the end of the mid term. So that gives you a range of the net impact we think this program will have.

And one percentage point is about what, 5,000,000? Yes.

Thank you. We move over to the next question which is from Patrick Rafais, UBS. Follow-up on growth and efficiency program related costs. How will they be spread over 25%, 26 How much will be in the one offs?

Okay. I think that's something you have, Jenny.

I think if we look at what we trying to achieve in the two years, then I think two thirds of the investment should come in the first year and one third in the second. And then the reverse should be cut through of upsides to the bottom line. As I said before, there's really three elements to the invest. Within the margin, it's around automation projects and efficiency projects. So this is some staffing, but also some equipment and other things. So it'll have a CapEx plus and OpEx impact and the COGS impact there. And that's maybe two thirds of the program is around top line improvements specifically in C and I to ensure we keep our competitive position take more profit and cash into our program to pivot to healthcare. And one third is around OpEx, and that is more headquarter and support functions leaning our organization out to the volumes we have today.

And we have also already started, I think part of it already came in Actually, last year, because We are closing one side, the one smaller side. During 2024. And there people have already some of them have been released all the others are noticed. And of course, these costs came in also in 2023. [indiscernible] You're right. So two thirds by the end of twenty twenty five, one third by the end of twenty six. [indiscernible] There's another question from Patrick Rafais.

Can you detail the remaining impact of the dual source in truck delivery in 2025?

Yes. I think when we look, we are now more than halfway through. It's about a little bit more than 50%. In absolute terms, It will be smaller than what we have seen last year, but it that will be still somewhere between 40% to 50%.

Question from Patrick Rafais. Cash flow outlook 2025. What's the guidance for CapEx and net working capital?

So the guidance for CapEx is to remain relatively flat to this year to 2024 in percentage of revenue. I mean, we had that spike at 14% when we had Valencia and Atlanta in parallel. Now we've gone back to 8% to 9% and we'll continue around that level. It could be that there's a little bit of pressure on that because as I said, we want to launch these automation projects and we have a strong pipeline of R and D we're working on too. So it will stay at the sort of 9% revenue we expect. In terms of working capital, I'd love to say that we're going to take another massive step change, but I don't think so. I think we'll stay flat to 20 fours levels at best because we did take quite a lot out in our inventory But this year, we're ramping up in industry surgery and drug delivery in our Atlanta facility. So in terms of insourcing, it might mean that to make sure we secure our customer deliveries, our inventory actually goes up a little bit. So it depends on the timing of that [indiscernible] I would say pretty flat.

Thank you. At the moment, there are no more questions in the board. [indiscernible] is also No one There's no one waiting in line for oil question, so raise them now via the board or via the audio Q and A. [indiscernible] does not seem to be the case Then I hand over for the closing remarks.

Thank you very much. I think I'll ask for all the questions and I would like to thank you also to the operator. To lead us through this presentation. So good. And at the end also, everybody was able to ask the questions. Thanks. And stay in touch and hope that I see some of you soon again. Thank you.

Thank you. All for attending this event. We will now close