Grifols Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
July 27, 2023

There are 12 speakers on the call.

Operator

Hello, everyone, and welcome to the Grifols Second Quarter 2023 Conference Call. Thank you very much for taking the time to join us today. This is Nuria Pascual, Investor Relations and Sustainability Officer, and I'm joined by Thomas Glassman, our Executive Chairman and CEO Grifols' CFO, Alfredo Arroyo and Victor Grifols Deo, our Chief Operating Officer. This call will last for about 60 minutes. There will be a presentation of approximately 30 minutes followed by a Q and A session.

Operator

We will kindly ask you to limit your questions to a maximum of 2. As a reminder, this call is being recorded, and the materials for the call are on the Investor Relations website at griffels.com. The transcript and web A replay of the call will also be available on the Investor Relations website within 24 hours after the end of the conference call. Before we start, I draw your attention to the forward looking statement disclaimer on Slide 2 in the slide deck of our release. And forward looking statements on the call are subject to substantial risks and uncertainties, speak only as of the call's original date, and we undertake No obligation to update or revise any of the statements.

Operator

And now I would like to turn the call over to Thomas Glassman.

Speaker 1

Thank you, Noria. Good afternoon and morning to all on the call. Thank you for joining us. Today, I'm very pleased to announce the 2nd consecutive quarter of strong results for Grifols. We are not only delivering on our commitments, by accelerating these as a result of our turnaround strategy.

Speaker 1

Although the first half of the year All through the first half of the year, we have excelled in execution, proved financial discipline and enhanced our performance culture. We advanced on all key priorities during this first half of twenty twenty three. Our operational performance continues to improve on a sequential basis. We are reporting sustainable revenue growth driven by biopharma, Which is supported by solid underlying demand, favorable pricing and product mix led by Sembify, which grew 26% in the first half of twenty twenty three. We have accelerated margin expansion, Reaching an adjusted EBITDA margin of 22% plus for the first half, mainly driven by our Strong business performance and well executed operational improvement plan.

Speaker 1

During the 1st 6 months of 2023, We successfully deployed 100 percent of the EUR 450,000,000 cash cost savings improvement plan. Evidence of this is the cost per liter reduction, which declined sharply since August of last year. By the end of 2024, we expect to have booked the full amount of EUR 450,000,000 in savings on our P and L, considering the 9 month lag coming from our long inventory cycle, which, as you know, is characteristic of our industry. At the same time, plasma supply continues to grow at double digit growth rates. As a result of this performance, we have exceeded our revenues and adjusted EBITDA guidance for the first half to Andre's second half and full year 'twenty three guidance.

Speaker 1

We reiterate that leverage is a priority to us, And this includes reaching net debt to EBITDA of 4x by the end of 2024. As mentioned in previous calls, we have several work streams in place to deleverage the company, and we are working with the intent to close one deleveraging transaction by year end. We will share more information on this matter when we are able to, including on the previously announced China opportunity. In addition to all these important milestones, We continue to focus on our innovation pipeline, where we are making solid advancements. Victor will take you through them shortly.

Speaker 1

Grifols is committed to creating value for all our shareholders and restoring goodwill with the financial community. We firmly believe that to do so, we must consistently deliver on our goals and commitments. One of these commitments was to enhance our communication with stakeholders, and we will continue to do so. In the first half of twenty twenty three, we had the opportunity to engage with more than 100 investors through honest and constructive discussions, which were much appreciated. Going forward, we will continue to expand our outreach and aim to engage with more equity and debt market participants.

Speaker 1

As indicated in the Q1 'twenty three earnings call, We made the decision to reinforce and expand our IR footprint in the U. S. To better serve investors in North America and globally. Now we can announce that this position has been filled and the onboarding process has started. I'm sure many of you will have the opportunity to interact with our new Senior Director of U.

Speaker 1

S. Investor Relations and Sustainability, to reinforce the global team led by Nuria Pasquale and Danny Segarra. Before Victor takes us through a business update, I would ask you at the end of our presentations to take a moment and review the comprehensive efforts Grifols has also undertaken in terms of sustainability through our 6 pillars during the first half of twenty twenty three. These pillars to represent our collective commitment to drive positive change and make a lasting impact. By reviewing the details of our sustainability initiatives, we trust that you will gain an appreciation of our efforts and progress spanning from environmental stewardship and social responsibility to ethical governance, supply chain excellence and employee well-being.

Speaker 1

I would like to conclude by reiterating how encouraged I am by all our progress in the first half of the year, and I want to thank the entire Grifols team for their hard work, dedication and perseverance. With that, I will now hand the call over to Victor.

Speaker 2

Thank you, Thomas. Good afternoon, everyone, and thanks for joining us today. Turning to Slide 6. We achieved revenues of more than €3,200,000,000 for the first half of the year, Growing 13.1 percent at constant currency and 14.8% on a reported basis. If we exclude Biotech, total revenues reached almost €3,000,000,000 an increase of 7.7 percent at constant currency and 9.4% reported basis.

Speaker 2

Biopharma revenues grew 14.9 percent at constant currency and 16.7% on a reported basis, to reach €2,700,000,000 and by 8.4% at constant currency and 10.2% on a reported basis to EUR 2,400,000,000 excluding BioTest, backed by a robust underlying demand, favorable pricing and product mix. Now turning to Biopharma, Slide number 7. The significant growth in our IG flagship product seen in Q1 has continued into Q2, resulting in a half year growth of 13.6% at constant currency. As before, we have seen sustained upward momentum supported by higher plasma supply and robust underlying demand, coupled with favorable pricing and some product mix. Subcutaneous IG revenues grew 26% in half one twenty twenty three.

Speaker 2

We continue to expand our offering of subcutaneous immune global in CHEM V5 globally. And to that end, you would have seen that we initiated a launch in Spain and plan to launch CHEMBI 5 in Australia in the second half of the year, just as two examples. In albumin, Strong demand and favorable pricing in China and rest of the world are the main drivers of growth, offsetting some weaker volumes in the U. S. Going forward, overall, we expect volume demand to remain very robust throughout the year.

Speaker 2

Finally, our Alpha-one and Specialty Protein segment grew 0.3% on constant currency, driven by a mixographic volume performance in Alpha 1 with higher volumes in the U. S, partially offset by lower volumes in certain European countries. We are increasing testing volumes in the Alpha-one, which will trigger further sales growth during the rest of the year. On the other side, we noted a favorable performance in our hyper portfolio and continued positive strength in our partnerships in bleed management products. Partially offsetting that, we have lower demand of our plasma derived factory product.

Speaker 2

Now turning to Slide 8. Grifols is strengthening its IG franchise as we continue to see a solid growth opportunity in the €40,000,000,000 IG Market, which is growing high single digits and is expected to continue to do so. We have 3 strong brands And a unique strategy to drive further growth. We are accelerating our commercial and innovation efforts to capture opportunities with our subcutaneous IG product, to verify, which commands a higher price than IVIG and currently represents only a single digit percentage of our IG sales, and we expect this to continue increasing over time. In parallel, we are building on our IVIG Camon X track record, Consolidating our industry leading position in neurology and acute care while continuing our work to keep IG therapy as a standard of care at the standard of care.

Speaker 2

In addition, we believe Biotechi and Mogo will be instrumental in supporting to discuss this long term growth and reinforcing our position in Europe. We continue to remain focused on the immune deficiency market, which comprises the largest share of IVIG usage with primary and secondary immune deficiencies growing ahead of the rest of the users. As global plasma supply increases, we are anticipating a strong growth with opportunities on core indications, especially PID and secondary immune deficiency, but also in CIDP. Demand has remained robust And it's expected to continue to be so. Many patients, even in top markets, remain underdiagnosed.

Speaker 2

Demand for treatment of secondary immune deficiency, for which currently there is no competitive threat, continues to show growth. Even though incidences of diseases are similar across geographies, consumption rates can vary very significantly among them. Actually, IG in the U. S. Is still consumed at almost 3x the rate per capita of population when compared to Europe.

Speaker 2

Therefore, IG market growth is expected to outpace potential erosion from disruptive technologies. Turning now to Slide 9. Our ambition going forward is to increasingly focus on innovation as a key driver of our medium- to long term growth. To support this objective, we are expanding our existing commercial offering as well as seeking new commercial opportunities, especially in the use of IG. We are pleased to announce that we achieved a number of key milestones since our last quarterly update.

Speaker 2

During Q2 'twenty three, we finalized the enrollment of the PRECIOZA trial and also for the SPARTA trial study, with the latter progressing ahead of schedule. We have also made significant advancements on our biotechnovation commitments with both fibrinogen and trimodulin firstly trials on track. With regard to fibrinogen, we completed the ADFIRST trial and presented top line study results in line with our expectations. The data will be used for clinical submission, both in Europe and U. S, where we to expect to receive market approval by the end of 2024 and late 2025, respectively.

Speaker 2

For remodeling, we initiated the ESCAPE trial study, and the fixed sites have been already activated. And finally, we have completed the IMO growth BLA submission to the FDA. Now moving into Diagnostics, Slide 10. Diagnostic revenues continues to be driven by blood typing solutions, where we are seeing strong growth across the U. S, Argentina, Brazil and Spain.

Speaker 2

It is noteworthy mentioning that Grifols Blood Typing Solutions is outperforming the market growth and continues to gain market share. As you saw in Q1, our revenues in NIT Technology are somehow affected by the pricing concessions in exchange for extending a large contract with our key customers to up to 20 years. However, a number of factors in Europe and Asia are helping to partially offset This, including a strong demand in Japan and instrument sales in Philippines, as an example. Now turning to Slide 11. The Bio Supplies division, revenues grew 57% at constant currency, benefiting from integration of Access Biologicals.

Speaker 2

All three subdivisions have reported a strong revenue growth with biosupplies, Diagnostics revenues more than doubling. And now I hand it over to Alfredo.

Speaker 3

Thanks, Victor, and thank you for joining us today. Moving to Slide 13. We're very pleased to report a continuation of the strong momentum seen in the Q1. Revenue growth across key divisions and margin came in above expectations, Driven by strong business performance and the execution of our operational improvement plan already 100% deployed. Total revenues increased by 14.8 percent, reaching €3,200,000,000 Plus 9.5 percent like for like, excluding BioTest.

Speaker 3

Biopharma revenues Grew 16.7 percent or 10.2 percent like for like. Therefore, the revenue growth It's tracking above our previous full year guidance of 8% to 10% for the group and 10% to 12% for biopharma. Adjusted EBITDA margin improved further in Q2 to 23.4% from a 21% margin in Q1. This translates to a 22.2% EBITDA margin for the first half of the year, exceeding our guidance for the period. Our leverage ratio declined to 6.9 times by end of June, supporting our commitment to deleveraging our balance sheet.

Speaker 3

Plasma supply and cost per liter have both improved sequentially versus Q1 2023, where plasma supply increased by 12% and the cost per liter declined by 20% versus 2022 This slide shows the sequential improvement across financial key metrics. We continue to see mid to high single digit revenue growth, driven by biopharma, which has benefited from solid plasma supply, robust underlying demand, pricing and product mix. As a result, our top line has reached almost €6,000,000,000 on the last 12 months basis, with the 2017 growth versus Q2 2022. Our profitability is steadily improving Shown in the last 12 months EBITDA trajectory, which is now close to €1,300,000,000 EBITDA margin reached remarkable 23.4% in Q2, representing 35% growth versus Q2 2022, driven by the strong business performance and the acceleration of the operational improvement plan. Deleveraging continues improving now at 6.9 times compared to last year peak of 9, improving by 2.1 times, driven entirely by business performance and cost discipline.

Speaker 3

Next slide shows the adjusted EBITDA bridge that progresses and the progress versus Last year, year to date June, the EBITDA has reached €655,000,000 That represents an improvement of €93,000,000 22.2 percent margin, which implies an additional 150 basis points versus prior year, driven by biopharma contribution as well as the operational improvement plan. And then we have €135,000,000 of one off charges that includes mainly the EUR 140,000,000 restructuring charges that we booked in Q1. No additional restructuring costs are expected. The next slide to show the operational improvement plan is progressing above our expectations. All the initiatives have been 100% to deploy, exceeding the €450,000,000 savings.

Speaker 3

And We have already achieved €235,000,000 in cash savings in the first half of the year and we're expecting additional €160,000,000 cash savings in the second half. If we consider that almost 75% of the total savings are plasma cost related and due to the 9 months plasma inventory accounting, €75,000,000 savings have been posted through the P and L in H1. An additional €85,000,000 will come in the second half and a carryover of €280,000,000 savings will be booked in 2024. Plasma cost per liter. As shown in this slide, as of June, We made rapid progress in reducing our plasma cost per liter by 20% from the 10% drop reported in Q4 2022 versus all July peak costs in 2022.

Speaker 3

Plasma supply increased by 12% in the first half of the year, which is aligned with the plasma needs to support our growth. Close to the 50% of the cost per liter decline comes from lower donor compensation And another 50% from other optimization initiatives such as process optimization, streamlined operations, overheads, processes and digitalization. In line with the previous slide, Plasma cost reduction has a very positive impact in the gross margin. But considering, once again, The 9 months inventory accounting, those plasma cost savings will mainly impact in 2024 P and L. In the second half of this year, we see a potential of more than 250 basis points margin improvement compared to the first half of the year.

Speaker 3

We expect further margin expansion in 2024, supported by the operational improvement plan of the initiatives currently deployed. Next slide shows our leverage commitment at 4x leverage by the end of 2024 that remains unchanged. We continue deleveraging organically as a result of our business performance and our operational improvement plan. The 4 times leverage target will come from 70% of the operational improvement plan plus EBITDA organic growth and the remainder 30 percent deleverage will come from deleverage transactions, whose Cash proceeds will be fully used for debt reduction. We currently We have a total liquidity of €1,200,000,000 including €500,000,000 in cash.

Speaker 3

Based on the strong first half of the year, results delivered And since we are very confident on the second half of the year, we're raising our guidance for the full year revenues and EBITDA. We expect full year 'twenty three total revenue growth, including BioTest, of 10% to 12% at constant currency Compared to the previous guidance of 8% to 10%, this is backed by biopharma revenue growth of 12% to 14% compared to a prior guidance of 10% to 12% all at constant currency. Regarding EBITDA, now we expect the EBITDA margin for the second half of the year to be in a range of 24%, 25% and a full year EBITDA margin at 24%, expecting The continuation of a strong sequential quarterly margin improvement. This should lead to an adjusted EBITDA, including BioTest of €1,400,000,000 to €1,450,000,000 by the end of the year. And considering the annualized cash cost savings, the pro form a 2023 EBITDA is expected to be in the range of EUR 1,700,000,000 to EUR 1,750,000,000 representing 28%, 29% EBITDA Margin, which basically is coming back to 2019 margins.

Speaker 3

And now I hand over to Thomas for closing remarks.

Speaker 1

Thank you, Alfredo. I would like to conclude by reiterating a few points we have already made. I will also highlight the main triggers that support raising guidance for the second half of twenty twenty three and for the whole year. We are pleased with the progress made during the 1st 6 to take the next month of the year through operational performance, both on the commercial and innovation front as well as on the deleveraging. And we will continue to execute on all of these with the same focus in the second half of the year and beyond.

Speaker 1

In the Q2 of 2023, Grifols accelerated its delivery further from the very solid momentum seen in the Q1. We expect the strong sales growth to continue, driven by demand for the key proteins, product and country mix. The company has already successfully deployed 100 percent of EUR 450,000,000 cash cost of the cash cost saving plan. Testament of the execution of the plan is the cost per liter reduction of 20%, while plasma supply grew 12% for the first half of twenty twenty three. As mentioned, we also made good progress with our focus on innovation.

Speaker 1

We met numerous innovation milestones, which will support further growth and margin expansion in the coming years, including the European approvals for Sembify and BioTest's Yemugos. We are therefore confident in our ability to deliver on the raised financial guidance in the second half of the year. Deleveraging remains a top priority, and our commitment to reduce the leverage ratio to 4 times by 2.24 is unchanged. We are today advancing on several work streams supporting our deleveraging efforts. Finally, I want to reiterate the board is fully invested and focused on creating value and making our commitments a reality, while the executive team is laser focused on accelerating the execution of the company's strategy.

Speaker 1

Key focus continues to be on operational excellence, on cash flow improvement and debt reduction, and ultimately, on increasing value for all shareholders. Once again, I want to thank our entire Grifols team for making it all happen. Without everyone's effort, focus and dedication, the progress made in the first half of twenty twenty three would not have been possible. I appreciate your attention. And I now turn it back to Nuria, who will open it up for questions.

Operator

Thank you, Thomas, and thank you all for your time. With that, let's start the Q and A session. As you know, you need to press We need to stick to 2 questions per analyst. And if you have follow ups, you can dial star 5 again and you will be placed into the list once more. After your question, we may need to put you on mute to avoid background noise.

Operator

So now our first question comes from Peter Verdult from Citi. Hi, Peter.

Speaker 4

Hi, Niren, Peter Delzzi. Hi, everyone. Thanks for taking my questions. I will stick to it and then go back in the queue. The 2 are related around the deleveraging point, which you touched on, Thomas, in your prepared remarks.

Speaker 4

But could I just push you firstly on RAS, The partial disposal, anything you're willing to say more on timing and the number of interested parties would be helpful. It's The question we often get asked by existing and potential investors. And then secondly on Diagnostics, are you looking to stabilize Business further and demonstrate a sort of sustainable growth rate before considering alternative options that could further Accelerate De Leverage. I know you've said very clearly at the start of the year 1 to 2 transactions in 2023, but it feels to me at this juncture That's more like it used to be RAS divestment in 2023. So feel free to put me back in my box if you feel I'm coming to the wrong conclusion, but Just wanted to get a bit more color on RAS and Diagnostics.

Speaker 4

Thank you.

Speaker 1

Thank you, Peter. Great to hear your voice. Well, let me to basically reiterate some of the things that we've said. The potential China deal or Shanghai RAS is in process. Discussions are ongoing.

Speaker 1

We cannot offer more comments at this point, but we will obviously inform you as soon as we have news. We do stand by Our June release of the potential transaction that would generate EUR 1,500,000,000 in cash and would retain a strong position in China. But I do want to remind you that this is one of our work streams, But also that 70% of fixing our balance sheet, and I'll come back to what Alfredo mentioned, really is on improving our operational performance. So with regard to the Diagnostics, we're obviously looking we have a couple of work streams going. We are looking at A number of things at the moment.

Speaker 1

We have valuable assets and diagnostics is one of them at this point in time. And as these discussions are ongoing, as you will appreciate, they're obviously very confidential and I cannot divulge on the more details on the different work streams until we actually can make something official.

Operator

Thank you, Thomas, and thank you, Peter. We have James Gordon from JPMorgan on the line. Hi, James.

Speaker 5

Hello. James Gordon, JPMorgan. Thanks for taking the two questions, both about immunoglobulin, please. The first one was immunoglobulin performance this quarter and this year. It looks like maybe immunoglobulin has decelerated slightly, but It still seems to be growing low double digit this quarter, so strong performance.

Speaker 5

I think I heard a comment about an uptick in sales ex U. S. So have you seen any softening in U. S. Demand growth as one of your peers seem to suggest that they've seen?

Speaker 5

And so that's why you're shifting more sales to Europe? And how does the profitability compare of selling IG more in Europe than the U. S? That's the first question, please. And the second one, I think you alluded to it on the call already that argenx, they had their headline Vivcard CIDP results.

Speaker 5

So just curious, any thoughts on the data that they generated, Whether you think that would see much erosion of your franchise or not, I'd say your perspective on that data whether we might see significant switching?

Speaker 2

Hello, James. Good to hear you as well. I take the first question on immunoglobulins, about The geographic, clearly, in Europe sorry, in Europe, outside U. S, we see a strong demand. And as long as we have now rebound on the plasma supply, we are able to keep supplying The nice growth that we are seeing outside, in fact, we are growing very nicely there.

Speaker 2

In the U. S, similar case, we continue to see a strong underlying demand in the market. And now as well, we are able to supply this market. In addition, we as you know, we are ramping up continue ramping up Our subcutaneous product, Schembify. And in both, we are seeing nice growth and stable pricing.

Speaker 2

And profitability, at the end of the day, comes to pricing in this franchise. And as we all know, there is a price gap between U. S. And outside U. S.

Speaker 2

Countries, and this is driving The different kind of profitabilities that we see geographically.

Speaker 1

Hey, James, this is Thomas. I'll take the second question. Well, first of all, we believe that the results are actually good for us because they really reconfirm our position that the argenx results are going to have very little impact on our business. We continue to be very optimistic about The HIV opportunity with a $14,000,000,000 market growing at high single digits and the opportunities that we have with not only in the U. S, but globally with our product range and particularly as was pointed out with Sembify, which Still represents a very, very small portion of our total IG sales.

Speaker 1

And as I mentioned before or as it been mentioned in our protocols, The profitability of Sembify obviously significantly higher. And as we shift more or sell more of Sembify that will Significantly improve also the overall profile of our biopharma business and profitability. So we're actually Continue to be extremely excited about where we're going, what we're doing and the future of our IG franchise.

Operator

Thank you. Thank you, James. Now we go for Jaime Scriveno from Banco Santander. Hola, Jaime.

Speaker 6

Hi, good afternoon. So a couple of questions from my side. So just if you can elaborate a little bit more On the sales performance of 7% growth at constant currency, Grifols excluding Biotech In Q2 versus around 9% in Q1 and reading your slide, IG seems to be growing at double digits, assuming at around 5%, but then there is This piece that you mentioned growing close to 0, alpha-one, hyperimmunous factor VIII. Maybe if you can give us A little bit more color on this. And also how does this reconcile with increasing the top line guidance for the year because you basically accelerate or increase the top line growth to double digits in plasma.

Speaker 6

So my question would be, if in the second half, are you seeing an acceleration maybe of this part that has been A little bit weaker this quarter. So and then my second question is regarding The BioTest licensing agreement that was announced back in May, if you can give us a little bit more details on how is this going to be implemented and how should we think about the P and L, If there is anything we should bear in mind going forward. Thank you very much.

Speaker 2

Hello, Jaime. I will take the first question. In this, let's say, 3rd bucket that we call it Alpha-one and Specialty Proteins, Really, it's a bucket that contains many, many different, let's say, product lines. The main one, of course, being Alpha 1. Clearly, it's a mix of performance on those different business lines.

Speaker 2

As I said, if we Precise on Alpha-one. As you know, Alpha-one, it's highly related with diagnosing Seeing potential patients to be put lately on therapy. And during 2022, what we experienced as we were exiting The pandemic, we were ramping up our testing in the franchise. You have seen that we have kind of reinforced This testing approach with the home kit to expand the progression. And there is a lag time between diagnosis to truncate that into Viproton Therapy.

Speaker 2

And back to your point, we expect this ramping up in testing that started second half last year And that is continuing during this 5th semester. We expect this to deliver more patients to be, let's say, Put on therapy, and this will help the improvement in performance and growth during the second half. In addition to that, to your broader question about second half, for instance, albumin, you see this 5.1%. We expect this to continue to be accelerated, and we expect to see a better, let's say, performance Than the 5.1 percent in albumin also. And this makes the overall year to look higher than what it looks today.

Speaker 3

Okay. So Jaime, to your Second question about BioTest. Yes, we signed this transfer, take and license and development agreement, by which this is going to cover the exchange of technology, know how, so therefore, working together between glyphosate and BioTest. And to your point to the P and L, there is no P and L or cash

Operator

Thank you, Alfredo. Now we have a question from well, or 2 from Thibault Boutterin from Morgan Stanley.

Speaker 7

Hello. Thank you very much for taking my question. First one is On immunoglobulin versus other proteins, I mean, we are seeing more growth right now of immunoglobulin. If you could just Tell us a little bit about your thinking in the context of the last little economic logic, How you're thinking about balancing growth between protein going forward? And is it an issue at some point in terms of profitability If immunoglobulin continue to grow faster than other proteins.

Speaker 7

My second question is, If you could just talk a little bit about the cost of treating CIDP patients. We know already that The annual cost of this regard in CIDP is going to be similar to mycenagravis, so probably a little bit more than $200 That's about $1,000 per patient. And so if you could contrast this with the average annual cost of treating a CIDP patient today in the U. S. With immunoglobulin.

Speaker 7

And if you could comment on IG potentially having or not a cost advantage compared to new innovation inside DP. Thank you.

Speaker 2

Okay. It was a little bit hard to understand The whole question, but on the first one, if I understood, is the unbalance or balanced growth in our proteins. I should say that We are working towards a goal, a strategy to rebalance our protein growth, both Especially the top ones, which as we know are IG and albumin. There is still a gap. But We are targeting during this year, 2023, and the coming year, 2024, to rebalance as we were pre pandemic, which It's the optimal, let's say, scenario from the profitability standpoint.

Speaker 2

It's not yet there, but we are working towards balancing those 2 proteins.

Speaker 1

Okay. I'm not sure I heard your questions very clearly, but if I think I got it, it was you were asking about the pricing differential between the new product that was just went through clinicals And our Igev, is that right?

Speaker 7

Can you hear me?

Speaker 1

Now we can hear, yes. Is that did I get this right? Okay. Yes.

Speaker 7

You get it. I mean, we already know. I mean, argenx, I think, commented that the price, the cost in You said it is going to be similar to my Stella Gravy. So we know already it's going to be in the tune of $200,000 or maybe a little bit above that. And so if you could just compare this with IG and implication in terms of reimbursement and access to treatment?

Speaker 1

Well, first of all, obviously, the treatment for IJV, it's about 80,000 or compared to the 200, we've heard even a much higher numbers than the 200 for a full treatment of the patients. So, IJVs obviously are significantly lowering costs to the system and the patients than what we had expected. And actually, if you take the 600,000 The cost differential could be 10 times. So depending on what number they state they tell you, we think that there is a significant difference. And we also think that this is going to be something that people will look at closely as we move forward.

Speaker 1

So That gives us another very optimistic view of the fact that IJVs will do very well going forward even in the CIPD segment.

Operator

Thank you. We have Now on the line, Tom Jones from Berenberg. Hi, Tom.

Speaker 8

Good afternoon. I have Couple of questions. Probably one for Alfredo actually, just pretty boring one, but on operating and free cash flow. Obviously, the business is improving, but free cash flow is still pretty weak and negative. You're still, by the looks of it, continuing to invest In inventory, when should we expect those drags on working capital to either abate or become a bit of a tailwind and you need to start printing some Positive free cash flow.

Speaker 8

Is this more a 2024 story? Or do you think you can do that in the second half of the year? And then the second question, kind of a light to cash flow, but tied to the leverage story. I think we're all fairly confident or there's a clear path to how you can knock 2 turns of EBITDA off your leverage By organic EBITDA growth, but you still need one further whole term to come from asset sales, which to some degree not entirely within your control. You need 3rd parties to play ball on that.

Speaker 8

So given the end of 2024 is only 18 months away, How are you thinking about kind of plan Bs at this point with the leverage if the asset sales don't come to pass? I'm just wondering what Your kind of thinking might be at this point in terms of trying to hit that 4 times target.

Speaker 3

Okay. Tom, Good to hear you again. Regarding the cash flow, I mean, if we think in terms of operating cash flow, Basically, in Q1, we have a negative cash flow, mainly driven by the restructuring cost. Even if we adjust the restructuring cost, in Q1, it was Slightly negative, around €25,000,000 In the year to date, the operating cash flow, Excluding the restructuring cost, it's been positive €72,000,000 That means that in Q2, We have turned into €100,000,000 positive operating cash flow. So you take a look at the annexes that we have published, remember that, That cash flow, free cash flow include the interest expenses that because it starts from the to start the calculation from the net profit.

Speaker 3

But operational cash flow wise, we have already moved into a second quarter positive. And in the second half of the year, on the back of higher EBITDA, Point number 1. And then the absence of any further restructuring cost, And we expect that the operating cash flow is going to keep improving from now to the second half of the year.

Operator

And there was the second question that was on the leverage and the asset sales and what's the plan B?

Speaker 1

Well, plan B is we're going to execute on what we've said. So we have one transaction that we've announced. And As you pointed out, Tom, a significant part of it is operational from operational performance. So We're very set on delivering on those two things to get to the 2 24.

Operator

Okay. Thank you. We have Guillermo Zampaio from Caixabank. Hi, Guillermo.

Speaker 9

Hello. Thank you for taking my questions. So the first one on cost per liter. So you've talked about Some efforts going forward to continue reducing cost per liter. We've announced EUR 450,000,000 cost savings Already deployed.

Speaker 9

What else should we get in terms of additional savings? And the second question about Plasma Collections, how should we think about growth over the remaining part of the year.

Speaker 3

Thank you. Regarding the cost per liter, as we said, As of today, we are 20% below peak of cost per liter last year. That was during the summertime. And we expect that it will be slightly better. So that means that we expect that the cost per liter finally We'll decline around EUR 25,000,000,000, okay?

Speaker 3

And but now not on the back of donor fees, But on the back of other, I would say, other opportunities and other initiatives that we have launched, So that's going to further help in the gross margin. Regarding the collections, we are monitoring remember that there is high correlation between Donor compensation and collections. And of course, the we need to make sure that we fine tune the collections in terms of volume to make sure that the volume that is coming is enough to support our sales growth.

Operator

Thank you. And next question coming from Alvaro Lenze from Alantra Equities. Alvaro?

Speaker 10

Hi, thanks for taking my questions. The first one is on guidance. I believe The increase I would have expected from the increase that you have provided on top line guidance and being in the upper range of margin, I would have expected that Total EBITDA in euro terms to be upgraded more. I guess it seems that the increase in the EBITDA guidance from over €1,400,000,000 to 1.4 to 1.45 is not that much of an increase. So I was wondering whether this is due to good performance in Grifols standalone, but our worst performance in Biotis, how is the increase in the EBITDA that low for 2 additional percentage points of top line.

Speaker 10

And also continuing with the guidance at the last call, you indicated that you were Comfortable with the consensus on 2024 EBITDA, which was somewhat above €1,800,000,000 So how does this increase in the guidance for 2023 REITs into 2024. So whether This is just an acceleration of the cost savings or whether this could also imply better performance in 2024? Thanks.

Speaker 3

Okay. Thanks for the question. So to the first point, the guidance for this year, remember that even though we have already to achieve and deploy those EUR 450,000,000. As I said, especially since the More than 70% of the savings are coming from plasma cost. It takes time to go through the P and L.

Speaker 3

So that's why, As I said, most of the plasma cost savings will hit the 2024 P and L. So we have increased from 1.4 to 1.450 because of the phasing of the savings flowing through the P and L. Regarding next year, we will provide you with guidance at a later stage, And we feel comfortable that this year, we're going to close the year at 24%. And then, As I said, we have provided already with pro form a EBITDA 2023 based on the Savings, which is 1.7000000, 1.750. And later on, let me first close the year.

Speaker 3

And then early next year. We'll keep you posted about 2024 guidance.

Operator

Okay. We have a question from coming from Joaquin Garcia Quidoz from JB Capital. Hi, Fangen.

Speaker 11

Yes. Hello. Thank you for taking my question. Just a follow-up Regarding the free cash flow, you said that working you didn't say anything about working capital. So when can we expect Reversal of working capital, especially in inventories, is it more for the second half of this year?

Speaker 11

Or should we expect more of a reversal during next year due to the reduced cost from plasma cost. Thank you.

Speaker 3

Yes. On one hand, The inventory is going to grow in line with the activity. As you know, that's the way that working capital works, especially inventory. But at the same time, as of today, the days the DIOs, the days inventory are declining. So for the second half of the year, we expect that the volume wise, the inventories are going to increase.

Speaker 3

However, due to this cost saving plan, the cash cost savings associated to plasma will offset that volume increase.

Operator

Great. We have a couple of follow-up questions. First from he was the first to be again on the list. Tom, I think you have something else.

Speaker 8

Yes. Thanks for taking my follow-up. It was a very quick one. I was just wondering if you could remind us when the price concessions related to the renegotiated contract with CTS Kicked in. From memory, it was the sort of mid level last year that the contract was signed.

Speaker 8

But I guess I'm just trying to figure out when the price headwind Drops out of the comparative quarters, whether it's Q3, Q4 or we should wait until next year before that happens.

Speaker 3

As of today, I mean, during this year, we are the price concessions are going through the pre We signed this agreement. It was Q1 last year, if I recall right. And so that's as of today, is the only reason why the gross margin of Diagnostics is slightly declining. But remember, in exchange of that, we have signed a contract up to 20 years. So we have secured the largest and the most profitable

Operator

Okay. And also another follow-up from Jaime Scriveno, Jaime?

Speaker 6

Yes. Jaime, it's a quick one. So just to make sure I understand Slide 18 properly where you say that the gross margin ex Biotech could increase in the second 250 basis points, although you do it with base 100, but if we take the gross margin of the first half ex Biotech, which is around 37.5%. My question would be, would it be fair to think about Our gross margin in the second half for Grifols, excluding Biotech, of close to 40%, so 37.5 plus, this 2 50 basis points. Is that the way we should think about this slide?

Speaker 6

Thank you very much.

Speaker 3

Well, for the second half of this year, basically, What is going to happen, we're going to see a strong growth on one hand. I'm going to give you what are the main growth drivers, a strong growth, volume wise, IG, but especially aluminum in China, point number 1. Point number 2, The plasma cost savings will start helping the P and L flowing through the P and L. Number 3, the all the other non plasma cost savings, basically OpEx savings, are going to also to impact the P and L. And since the second half of the year sales will be higher, the operational leverage will be higher.

Speaker 3

Therefore, all of these factors, all of these components will support the increase of EBITDA margin. You're going to see sequentially that we move from this 2021 to 2023 and then In Q3 and Q4, further quarterly margin improvement on a sequential basis.

Operator

Okay. Thank you. And I guess that here we have one final. So Peter, you open and you close the Q and A session. So can we have your follow-up question?

Speaker 4

Yes. Thank you. Peter Knoll, Citi. Just Final question is on innovation. When you did the BioTest deal, the fibrinogen and the IGM opportunities were highlighted as significant.

Speaker 4

So I was under the understanding that the ADT1 fibrinogen Phase III data was imminent. I think you've cited the H2 event, but can I just push you either Victor or Thomas, When do you expect the data to be in house? Or when do you expect to at least top line the data to the market? And can you remind us again Your comfort of, I think, EUR 400,000,000 to EUR 800,000,000 revenue opportunity was quoted at the time of the deal. I believe CSL does about €300,000,000 of Fibringent sales off label.

Speaker 4

But can you remind us, is it still €400,000,000 to €800,000,000 that you believe is the peak sales opportunity for the Fibringent? Thank you.

Speaker 2

Yes, we expect the to provide the data probably starting next year, 2024. During the first half, I should say, This is the expectations that we are targeting. And regarding, yes, the peak sales remain Similar to what we have announced.

Speaker 1

€48,000,000 Yes.

Operator

Okay. And with that, I think we will close today's call. And We hope to see you or hear you again in our next quarterly calls. And now in the meanwhile, for those of you who have not been yet on holiday, so enjoy summer and speak to you soon. Thank you all.

Speaker 1

Thank you all.

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Key Takeaways

  • Strong H1 performance: Revenues rose 13.1% at constant currency to €3.2 bn and adjusted EBITDA margin exceeded 22%, prompting a raised full-year guidance of 10–12% revenue growth and a 24% EBITDA margin.
  • Operational improvement fully on track: All €450 m of cash cost savings have been deployed, cutting plasma cost per liter by 20% while plasma supply grew 12%, with full P&L recognition of savings expected by end-2024.
  • Deleveraging remains a priority: Net debt/EBITDA fell to 6.9x in June, and Grifols aims to reach 4x by end-2024 through strong cash flow and targeted asset-sale transactions, including the proposed China RAS deal.
  • Biopharma momentum: Immunoglobulin revenues climbed 13.6% (cc) in H1, driven by robust demand, pricing and mix, while subcutaneous IG (Cuvitru) grew 26% and new launches in Spain and Australia are underway.
  • Innovation pipeline advancing: Fibrinogen ADFIRST Phase III topline met expectations with EU/US filings slated for late 2024/2025, trimodulin ESCAPE trial launched, and IGM BLA submitted, underpinning medium- to long-term growth.
AI Generated. May Contain Errors.
Earnings Conference Call
Grifols Q2 2023
00:00 / 00:00