M1 clinics: want to “return to a stable dividend” in the long term

The corona pandemic temporarily slowed M1 Kliniken AG’s drive to expand. But the Berliners are back on track. After the reopening of the centers, “the days with the highest turnover in the company’s history were recorded,” says Patrick Brenske, CEO M1 Kliniken AG, in an interview with the 4investors editorial team. Investments in growth should take precedence over dividends, but that should change in the long term, says Brenske. The merger with Haemato should help avoid double investments, among other things. M1 Kliniken also expects growth from its own offerings in the field of cosmetic beauty products, which – previously only sold online – are now also to reach the stationary retail trade. The takeover of Haemato by M1 was and is not understandable to everyone. What are the benefits of this clinic for M1 clinics?

Brenske: We expect the deal to focus the activities of both companies and avoid double investments. In the past, there was overlap between the fields of activity of Haemato and M1 in the area of ​​trade and the development of cosmetic products. With its international trading activities, Haemato is deeply rooted in the market and will promote the smaller-scale trading activities of the M1. In addition, the Haemato has e.g. with the ISO 13485 certification on important prerequisites for the successful development and approval of medical devices. In return, the M1 will be able to fully concentrate on expanding and managing the international network of aesthetic specialist centers. Haemato will squeeze its margins. Until now, their margin was in the lower double-digit range, analysts expect a value of around 6 percent in the future. What margin do you see as a target for the future?

Brenske: At M1, we are targeting an EBIT margin of 15 percent to 20 percent in the area of ​​medical specialist centers. In the medium term, Haemato should return to an EBIT margin of 2 percent to 3 percent, which has been achieved regularly in the past. The expected strong growth of the Haemato cosmetics division will also contribute to this, with which we aim to achieve EBIT margins above 20 percent. You operate specialist centers for aesthetic and plastic surgery. Recently there have been repeated reports that there are more cosmetic surgeries during the pandemic period. Can you confirm that?

Brenske: In fact, there is a lot of discussion about this. For example, closed fitness centers could increase the demand for liposuction. The obligation to wear a mask increases attention to the eye area, which could promote the demand for eyelid lift. After all, short-term impairments after surgery can be better concealed within the framework of home office.

It is still too early to speak of a real trend, but in fact we see a strong demand for our surgical services, which is currently well above the reference numbers of previous years. They had to close all locations in Germany from late March to mid-May. So if you predict “the old” M1 stable sales for 2020 – are you completely wrong?

Brenske: Due to the two-month closure of our clinic and practices, we are actually missing between 15 percent and 20 percent of our previously planned annual sales, so that in 2020 we can probably expect sales in the beauty sector to be at the previous year’s level. But this is a purely optical stagnation in sales development. If you look at the individual months since our centers reopened, you can see extremely strong growth compared to the previous year. Our locations are very busy and we are constantly hiring more doctors to carry out the treatments. The global beauty market is growing by around 5.5 percent annually. Is that your goal too?

Brenske: Our goal is, of course, to grow significantly faster than the market. We have carried out a study with GfK. GfK came to the conclusion that if the end customer prices were halved, the demand for aesthetic treatments could increase tenfold.

This is the aim of the M1 strategy. We consider the “historical” prices for aesthetic treatments to be far too high and oppose this with an inexpensive offer – while ensuring the highest quality. This enables us for the first time to enable many people to afford the corresponding treatments financially. We want to use the market growth that can be achieved in this way. How much is the crisis influencing your expansion plans? Are 50 locations realistic by the end of the year? Will the goal remain to have 100 locations by the end of 2023?

Brenske: Of course, the Corona crisis has thrown back our own plans. By the end of the year we are now planning to have 42 centers and 44 centers and the 100 target may shift into 2024.

However, it is much more important to recognize that Corona has no fundamental negative impact on our industry and our own development. After reopening our centers, we were able to post the days with the highest sales in the company’s history. And, as noted earlier, we can also observe encouraging trends in the context of the pandemic effects. How high are the investment costs for the expansion? And where does the money for expansion come from?

Brenske: The costs for opening a new specialist center are manageable, as we only rent the properties and the requirements for the space – despite high hygiene standards – can be implemented with manageable investments. We expect new centers to break even after less than a year and start paying back their own investments.

A key cornerstone for financing the expansion are the two capital increases from 2017 and 2018, which brought us cash and cash equivalents of almost 30 million euros. What are the locations of particular international interest for you as you expand?

Brenske: We can observe that the international markets for beauty medicine treatments also regularly show prices that are too high and therefore do not reach their full potential. In this respect, basically all countries are interesting for us. However, we set priorities here, since the local legal structures must be created in each country. Central Europe will continue to be the focus in the coming years – and above all Great Britain. Will you open several inpatient clinics in the future or will you stay at one house in Berlin?

Brenske: Our clear strategy is to work with patient clinics outside of Berlin. The capacities are available. In addition, we do not have to put in the organizational efforts to set up, approve and operate a private clinic. Our core competence is addressing patients and the high-quality, medical implementation of beauty treatments. The clinic is a means to an end for this. The brick-and-mortar retailers will also sell their products in the future. What do you expect from it?

Brenske: The market for cosmetic beauty products, e.g. Offered through M1 Select is a billion dollar market. We still sell these products primarily through our online shop and see growth rates in the three-digit percentage. But of course a large volume of products is also sold in stationary retail. We want to get on the shelf to be available in the menu, so to speak. In 2019, they generated financial income of 5.16 million euros. Will this value reach a similar level in the current year despite the crisis?

Brenske: We invest part of our liquid funds in marketable securities, for example to avoid bank custody fees. These investments are valued on the balance sheet dates.

In 2019 we achieved outstanding investment success, which of course cannot always be repeated. It is reassuring to know, however, that the securities held in the middle of the year will not lead to losses in the half-year financial statements. What is your dividend strategy like?

Brenske: This year, we suspended payment of the dividend due to the uncertainty surrounding the development of the corona pandemic. In the coming years, the focus will now be on achieving our growth targets and the associated investments. For this, dividend payments may have to be postponed in the coming years. In the long term, however, we want to return to the usual practice of paying a stable dividend.

At a glance – chart and news: M1 Kliniken AG


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