Grifols, S.A. Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Corporate Governance: Board responded to shareholders' request for potential privatization by establishing a transaction committee of independent directors. Implemented corporate governance actions, reorganized committees, and transitioned Thomas Glanzmann to a nonexecutive role.
• Leadership Changes: Formed a streamlined Grifols Executive Committee with external and internal executives. Welcomed Rahul Srinivasan as incoming Chief Financial Officer, bringing extensive finance leadership experience.
• Business Developments: Completed Haier transaction, extended albumin distribution agreement with Haier for 10 years with an option for a further 10-year extension. Terminated commercial relationship with Moody's, continued with S&P Global Ratings and Fitch Ratings.
• Innovation: FDA approved Biotest Yimmugo for commercial launch in the US. Xembify gained traction with FDA approval of biweekly dosing. Fibrinogen clinical trial results were promising, with regulatory approval process to begin in Q4 2024.
• Financial Performance: Q2 revenue was EUR 1,881 million, with first half revenue nearly EUR 3.5 billion. Adjusted EBITDA in Q2 was EUR 441 million (24.2% margin), and first half adjusted EBITDA was EUR 791 million (up 22% from last year). Free cash flow in Q2 was EUR 57 million.

Segment Performance

• Biopharma: In Q2, Biopharma had nearly 9% constant currency increase in H1 2024. Immunoglobulin grew 13% in constant currency due to strong IVIG demand and 60% increase in subcutaneous IG Xembify. Albumin saw ~10% growth. Alpha-1 and Specialty Proteins were flat. Revenue contribution: Biopharma contributed significantly to overall growth, with immunoglobulin and albumin driving the increase.
• Diagnostics: Q2 had a 1.2% increase on constant currency basis, led by Blood Typing Solutions and immunoassay donor screening. Excluding one-off settlement impact in Q1 2023, would have grown ~2% in H1 2024. Revenue contribution: Diagnostics provided a partial offset to other segment fluctuations.
• Bio Supplies: Strong performance in Q2, leading to 33% constant currency growth in H1 2024. Revenue contribution: Bio Supplies was a key driver of growth in the first half.

Guidance

• Reaffirmed full-year 2024 guidance. Anticipate adjusted EBITDA to exceed EUR 1.8 billion. Expect leverage ratio to reduce to 4.5x by year-end. Confident in achieving positive free cash flow for 2024.
• Anticipate sequential improvement in adjusted EBITDA in Q3 and Q4, driven by revenue growth, better product mix, lower cost per liter, and increased operational leverage.

Risks

• Potential risks related to the privatization process by Grifols family shareholders and Brookfield Capital Partners, with no guaranteed offer. Accounting adjustments and inventory management could impact financial performance. Uncertainties around the timing and outcome of the due diligence process for the potential privatization.

Question and Answer

• Q: On gross margin decline and financial expenses. A: Gross margin impacted by inventory provisions, and financial expenses include noncash items from repaying debt.
• Q: On free cash flow and Brookfield deadline. A: Committed to positive free cash flow for 2024, no deadline for privatization update.
• Q: On NAT and Alpha-1 franchise. A: NAT expected to bottom out, Alpha-1 transition to new distributor expected to bear fruit by end of 2024.
• Q: On net debt and Class B shares. A: Net debt declined from Shanghai RAAS proceeds, no comment on Class B share scenarios.
• Q: On albumin performance and EBITDA adjustment. A: Strong albumin demand, EBITDA adjustment related to Shanghai RAAS capital gain, with further details available in annexes.