The upcoming extension of old contracts will give Vita 34 additional earnings potential in the coming years. “Our margins for contract extensions are very high,” explains CFO Falk Neukirch in an interview with the editorial team at Personal-Financial.com. In addition, the Vita 34 business model proves to be “extraordinarily crisis-proof”, not least thanks to the significantly increased demand for the new “PUR” price model. “Thanks to contract extensions and new products, our earnings will continue to grow strongly over the next few years”, says CEO Wolfgang Knirsch with conviction. With regard to a potential merger with the Polish competitor PBKM, the board of Vita 34 sees “strategic and synergistic advantages in the formation of a significantly larger pan-European company”.
Personal-Financial.com: The sales of Vita 34 AG after nine months of 15.0 million euros were almost at the previous year’s level, the EBITDA margin of 29.1 percent was close to the target of 30 percent. How do you rate the operational performance in view of the Corona crisis environment?
Crunch: As we already demonstrated in the 2011 financial crisis, our business model is extremely crisis-proof. We had adequately stocked up our consumables, which of course can also lead to delivery bottlenecks, early in the year. In the current situation, however, in addition to economic uncertainties among our customers, there were also restrictions in logistics and in addressing customers and multipliers. We are very satisfied that we were able to compensate for the latter in a timely manner by switching to digital formats, which will also help us when the situation has returned to normal.
Personal-Financial.com: Vita 34 records a “significantly increased demand” for the new “PUR” price model. What does this pricing model look like and how does it affect your sales and earnings development?
Crunch: With “PUR” we have been offering a price model since 2019 that differs from our other products primarily through a lower advance payment. In addition, our customers pay a recurring annual fee. This type of payment, which has been extended over the years, makes the decision for storage easier for many customers and is therefore well received. Since April 2020 we have expanded this offer to include the fabric option, i. H. With this contract model, the customer has since been able to store not only umbilical cord blood but also tissue. This has led to a significant increase in demand for this type of contract. The price model has similar sales and earnings effects as our previous contract models, only the cash flow shifts more strongly to future periods.
Personal-Financial.com: You mention the tissue deposits, which recently showed a significantly increasing share. What advantages does the storage of tissue in addition to the umbilical cord blood offer your customers?
Crunch: That’s right, not only with the “PUR” pricing model, but also with the standard offers, the proportion of contracts concluded with the additional option “fabric” has increased significantly since the 2nd quarter of 2020. Compared to the known applications of stem cells from umbilical cord blood or those investigated in studies, the imaginable applications of stem cells from umbilical cord tissue (MSCs) are even broader. Current investigations range from applications in the field of cartilage and joint replacement to autoimmune diseases and severe lung diseases, as in the case of Covid-19. With the combined storage of blood and tissue, our customers are making even more provisions for possible future forms of therapy.
Personal-Financial.com: Mr. Neukirch, let’s come back to the current figures. At 4.4 million euros, EBITDA in the first nine months of 2020 was only marginally below the previous year’s value of 4.5 million euros – although Vita 34 invested heavily in marketing. Which marketing measures have you specifically intensified?
Neukirch: Since the beginning of 2020 we have concentrated more on sales again, which for Vita 34 means above all the intensification of gynecologist and midwifery approaches, as these are the most important multipliers in our sales process. Intensification means improving the addressing of the content but also geographical expansion and the like. a. through additional staff in the field service. Gynecologists and midwives are in contact with expectant parents at a very early stage and are therefore important multipliers. Because our products require a lot of explanation and so it is an advantage if parents-to-be receive extensive information on the chances early on before the birth Stem cell storage can provide. We have also continued to promote the online marketing of our products. Anyone interested in stem cell storage will now be better supplied with information on the way to the conclusion of the contract. We remind parents-to-be of the topic more often during pregnancy. Because as we all know, they are facing a multitude of new challenges and the important decision about health care with Vita 34 should not simply be forgotten.
Personal-Financial.com: What are your expectations of year-end business in light of the recent lockdowns?
Neukirch: We continue to feel very comfortable with our outlook for fiscal year 2020, which we published at the beginning of the year. Since the average time between signing a contract and realizing sales is several months, we can already estimate how the year-end business will develop. In terms of costs, the predictability is naturally somewhat lower, but here too there are no noteworthy special effects to date.
Personal-Financial.com: The downside in the 9-month report is the 32 percent decline in cash flow. As mentioned, is this the direct consequence of your new pricing model? And can a similar cash flow development also be expected in the following quarters?
Neukirch: As already stated, the “PUR” contract model has a somewhat delayed cash flow effect compared to the previously established contract models. In addition to this effect, cash outflows for taxes from previous years have also influenced the cash flow in recent months. These “tax back payment effects” are unique in nature. The cash flow strength of our business remains unchanged.
Personal-Financial.com: The analysts at Montega expect the upcoming extension of old contracts to have a very positive effect on earnings over the next few years. To what extent are there extensions in the next few years and what is the annual sales contribution per customer who extends?
Neukirch: In fact, the extension of old contracts represents a very decisive driver for our earnings growth in the coming years. Vita 34 was founded in 1997. Originally, the company essentially concluded prepayment agreements with a term of 20 years. This means that the annual new business from then on is now up for renewal. This has already been the case to a small extent in recent years. Starting next year, however, around 5,000 contracts will be renewed every year, which we will switch to annual payments. EUR 100 (net) per contract are then due annually, almost all of which affect the result. The effect of this is considerable and, in the event of the contract extension outlined above, would lead to a further increase in EBITDA every year. In the steady state, this would correspond to an additional annual EBITDA increase of approx. 0.5 million euros.