Grifols SA Q1 FY2024 earnings call

Management Statement and Operational Highlights

• Leadership Changes: Welcomed new CEO Nacho Abia, separated Chairman and CEO roles. Thanked outgoing executives Raimon and Victor Grifols and CFO Alfredo Arroyo, with Alfredo remaining until 2024 for transition.
• Corporate Governance: Separated management from ownership, expanded financial disclosures, and will add independent board members at upcoming AGM.
• Debt Management: Shanghai RAAS transaction to close in June, proceeds to be used to reduce secured debt. Completed EUR 1 billion senior secured notes issuance to address 2025 maturities.
• Innovation: Phase III top line results for fibrinogen met primary endpoint, expected regulatory approval in Q4 2024 and launch in 2025.
• Financial Performance: Q1 2024 revenues exceeded EUR 1.6 billion (+5.5% vs Q1 2023, +6.8% ex one-time commercial true-up). Adjusted EBITDA EUR 350 million (21.6% margin, up 280bps like-for-like). Plasma supply up 8%, cost per liter down 2% in March 2024.

Segment Performance

• Biopharma: Revenue grew 9.4% on constant currency basis. Immunoglobulin franchise up 13% (subcutaneous immunoglobulin +62% QoQ), albumin up 7%. Contributed significantly to overall revenue growth. Revenue contribution from Biopharma was substantial.
• Diagnostics: Revenue grew 2.7% on constant currency basis, excluding one-off revenues from Q1 2023. Blood typing solutions had low double-digit growth, but NAT performance impacted by shipment timing to China.
• Bio Supplies: Reported significant decline due to phasing, but expected to be offset by robust growth from Q2 onwards.

Guidance

• Revenue: Expected to exceed EUR 7 billion in 2024, surpassing 2023's record high.
• EBITDA: Guided to EUR 1.8 billion, with sequential improvement from 23-24% margins in H1 to 27-28% in H2.
• Free Cash Flow: Anticipated to be positive in Q2 and improve in H2, aiming for full-year positive free cash flow despite Q1 negative due to non-recurring factors.
• Leverage: Target to reduce leverage to 4.5x by end-2024, with long-term goal below 4x, relying on Shanghai RAAS proceeds and operational improvements.

Risks

• Short Seller Impact: Faced misleading reports from a short seller, but refuted allegations and received regulatory validation of financials.
• Operational and Market Risks: Potential delays in product launches, impact of shipment timing on Diagnostics, and market dynamics in the U.S. affecting growth.

Question and Answer

• **Q: What low-hanging fruit for improving free cash flow this year?

A: Focus on working capital normalization, continuous operational improvement, SG&A and spend control, optimizing real estate and a thorough portfolio analysis.

• **Q: Xembify product mix contribution?

A: Xembify is a high-margin product (50% premium to IVIG) with 5% of IG sales currently, but significant growth potential.

• **Q: Alpha-1 specialty pharma switch impact?

A: Switching specialty pharmacy partners enhanced service offering for patients on alpha-1 therapy, boosting growth.

• **Q: Leverage target update?

A: Targeting 4.5x leverage by end-2024, with long-term goal below 4x, relying on Shanghai RAAS proceeds and operational improvements.

• **Q: Capacity and future investments?

A: Fractionation capacity at 70%, well-positioned with plasma centers, and plans to add centers in Egypt and Canada starting in 2027.

• **Q: Investors Day and midterm guidance?

A: Investors Day in October, but specific midterm guidance to be provided then; confident in 2024 EBITDA guidance with key variables aligned.

• **Q: Short seller report on related party transactions?

A: Regulators and auditors confirmed related party transactions were at arm's length, payments to BPC were at market rates.

• **Q: Liquidity and strategic assets?

A: Liquidity comfortable, strategic asset portfolio analysis ongoing, no immediate plans for capital increase.

• **Q: Leverage midterm outlook?

A: Aim for leverage around 3-3.5x midterm, focusing on deleveraging through cash flow generation and asset management.